Real Estate Investment Trusts (REITs) are mutual fund-like investment vehicles that pool money from multiple investors and invest it primarily in income-generating real estate assets.

Investors receive units of the REIT in proportion to their investment. The income generated from the underlying real estate assets, such as rent and lease income, is distributed to unit holders in accordance with the applicable regulations after permitted expenses.

Real Estate Investment Trusts (REITs) were officially introduced and regulated in India in September 2014 when the Securities and Exchange Board of India (SEBI) notified the SEBI (Real Estate Investment Trusts) Regulations, 2014.

Structure of REITs

Similar to mutual funds, a REIT has three key entities:

Sponsor(s): The sponsor is the entity who forms the REIT. They set up the REIT and transfer the properties/real estate owned by them to the trust. A real estate developer desiring of raising funds plays the role of a sponsor in a REIT
Trustee: The trustee is a person appointed by the sponsor, who holds the assets on behalf of the unitholders.
Manager:The trustee appoints a manager who manages the REIT assets and is responsible for making investment decisions. The manager is typically a private company closely held by the sponsor

Features of REITs

REITs are set up as trusts under the Indian Trusts Act, 1882 and are required to be registered with SEBI.
Investment in Completed Assets: REITs are required to invest at least 80% of the value of their assets in completed and revenue-generating properties. This helps generate relatively stable income for investors.
Investment of Remaining 20%: The remaining 20% can be allocated to under-construction properties, debt securities of real estate companies, shares of listed firms (with at least 75% of their income derived from real estate activities), government securities, or money market instruments.
Investment through Special Purpose Vehicles (SPVs): A Real Estate Investment Trust (REIT) can invest in real estate either directly or through a Special Purpose Vehicle (SPV). When using an SPV, the SPV must put at least 80% of its money into properties, and the REIT must maintain a controlling stake of at least 50% of the equity share capital or interest in the SPV
Income: The income for the REITs comes in the form of rental income from real estate investments as well as the capital gains on sale of such properties.
REITs are required to distribute at least 90% of their Net Distributable Cash Flows (NDCF) to unit holders
Regulation: REITs are regulated by SEBI and are listed on exchanges thereby offering liquidity and trading convenience.
Restriction on Land: REITs generally cannot invest in vacant land or agricultural land.

Taxation of REITs

Nature of Income	Tax Treatment
Dividend Income	Dividend income distributed by REITs is exempt in the hands of unit holders, irrespective of the tax regime opted for by the underlying SPV. (This exemption was enacted by The Taxation and Other Laws (Amendment) Act, 2026, which omitted the restrictive clauses under Schedule V of the Income-tax Act, 2025, to make the unit holder's dividend exemption independent of the underlying SPV's tax regime.)
Interest Income	Taxable at the applicable income-tax rate/slab of the unit holder.
Repayment of Capital (till the cost at which unit was issued)	Treated as return of capital, i.e. reduction from cost of acquisition
Capital Gains on Sale of Units	Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) apply to the REIT unit holder when the unit holder sells REIT units and makes a capital gain. Short-Term Capital Gains (STCG): If units are held for up to 12 months, gains are taxed at 20%. Long-Term Capital Gains (LTCG): If units are held for more than 12 months, gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%.

Advantages of REITs

Low Ticket Size: Allows investors to gain exposure to large real-estate assets with a relatively small investment.
Liquidity: Listed REIT units can be bought and sold on stock exchanges, providing an exit option to investors.
Transparency: Regular disclosures, valuation of assets and reporting requirements enable investors to track investments and performance.
Regulated Investment: REITs are regulated by SEBI, providing a structured framework and investor safeguards.
Regular Income: Mandatory distribution requirements can provide investors with periodic income from income-generating real-estate assets.
Diversification: Provides exposure to real estate without requiring direct purchase and management of property.

Real Estate Investment Trust (REIT) vs Infrastructure Investment Trust (InvIT)

While REITs invest in income generating real estate, InvIT focuses on infrastructure projects like roads, highways and power assets.

FAQs

1. What is a Real Estate Investment Trust (REIT)?

A REIT is an investment vehicle that pools funds from investors and invests primarily in income-generating real estate assets. Investors receive units representing their investment in the REIT.

2. Who regulates REITs in India?

REITs in India are regulated by the Securities and Exchange Board of India (SEBI).

3. When were REITs introduced in India?

The regulatory framework for REITs in India was introduced in September 2014, when SEBI notified the SEBI (Real Estate Investment Trusts) Regulations, 2014.

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