REIT & InvIT for NRI Investors — Taxation, TDS & Capital Gains (2026 Guide)
By MKW Advisors — NRI Tax Desk Last updated: March 2026 | Applicable for FY 2025-26 (AY 2026-27)
Why REITs and InvITs Are Increasingly Relevant for NRIs
For decades, NRIs who wanted exposure to Indian real estate had one option: buy physical property. That meant dealing with property management from abroad, tenant issues, maintenance, legal disputes, illiquid capital, and a complex web of TDS, repatriation, and FEMA compliance.
REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) offer a fundamentally different approach. They are listed, regulated, liquid instruments that give you exposure to commercial real estate (REITs) or infrastructure assets (InvITs) without the operational headaches of physical ownership. You buy units on the stock exchange, receive regular distributions, and can sell whenever you want.
But the tax treatment is not straightforward — especially for NRIs. REIT/InvIT distributions have multiple components, each taxed differently. This guide breaks down the entire structure.
Understanding REIT and InvIT Distributions
This is the most critical concept for tax planning. A REIT or InvIT distribution is not a simple dividend. It is a composite payment comprising up to three distinct components, each with different tax treatment:
1. Interest Income Component
REITs and InvITs often hold assets through Special Purpose Vehicles (SPVs). The REIT/InvIT lends money to these SPVs, and the interest received is passed through to unit holders as part of the distribution.
Tax treatment for NRIs:
- Taxable at slab rates (up to 30% for NRIs from the first rupee above Rs 4 lakh)
- TDS: 30% plus applicable surcharge and cess (under Section 194LBA)
- This is pure interest income — no special concessional rate applies
- Must be reported under "Income from Other Sources" in ITR
2. Dividend Component
The underlying SPVs may pay dividends to the REIT/InvIT, which are then distributed to unit holders.
Tax treatment for NRIs (post-April 2020):
- Taxable at slab rates in the hands of the unit holder (the classical dividend taxation system that replaced the earlier DDT regime)
- TDS: 10% under Section 194LBA for dividend component (for resident unit holders; for NRIs, TDS is at 20% plus surcharge and cess)
- Must be reported under "Income from Other Sources" in ITR
Pre-April 2020 dividends: Were exempt under Section 10(23FC) as DDT was paid by the SPV. This exemption no longer applies.
3. Return of Capital (Repayment of Debt/Amortization)
A portion of the distribution may represent return of capital — essentially, the REIT/InvIT returning your invested capital rather than paying income. This can happen when the SPV repays principal on loans from the REIT/InvIT, or when asset values are amortized.
Tax treatment:
- Not taxable as income at the time of receipt
- Instead, it reduces your cost of acquisition of the REIT/InvIT units
- When you eventually sell the units, your capital gain will be higher because your cost basis has been reduced
- No TDS at the time of receipt on return of capital component
Distribution Breakdown Example
Suppose a REIT distributes Rs 5 per unit for a quarter:
| Component | Amount per Unit | Tax Treatment for NRI |
|---|---|---|
| Interest | Rs 2.50 | Taxable at slab rate, TDS 30% |
| Dividend | Rs 1.50 | Taxable at slab rate, TDS 20% |
| Return of Capital | Rs 1.00 | Not taxable now; reduces cost basis |
| Total Distribution | Rs 5.00 | Mixed treatment |
This is why NRIs must read the distribution breakup carefully. REITs and InvITs publish the component-wise breakup of each distribution. Your effective tax rate depends heavily on the mix.
TDS on REIT/InvIT Distributions for NRIs
TDS for NRI unit holders is significantly higher than for residents:
| Component | TDS Rate (Resident) | TDS Rate (NRI) |
|---|---|---|
| Interest income | 10% | 30% + surcharge + cess |
| Dividend income | 10% | 20% + surcharge + cess |
| Return of Capital | Nil | Nil |
Surcharge applicability:
- Income up to Rs 50 lakh: No surcharge
- Rs 50 lakh to Rs 1 crore: 10% surcharge
- Rs 1 crore to Rs 2 crore: 15% surcharge
- Above Rs 2 crore: 25% surcharge (for non-corporate NRIs)
The high TDS rates mean that NRIs often have excess TDS deducted relative to their actual tax liability (especially if total Indian income is low and falls in the 0%-20% slab). This excess TDS can be claimed as a refund by filing an ITR.
Capital Gains on Sale of REIT/InvIT Units
Listed REIT/InvIT Units (Sold on Stock Exchange)
Since REITs and InvITs are listed on stock exchanges (BSE/NSE), the sale of units follows the listed equity/equity-oriented fund capital gains regime:
| Holding Period | Classification | Tax Rate |
|---|---|---|
| 12 months or less | Short-Term Capital Gain (STCG) | 20% (Section 111A) |
| More than 12 months | Long-Term Capital Gain (LTCG) | 12.5% above Rs 1.25 lakh exemption (Section 112A) |
Key points for NRIs:
- LTCG up to Rs 1.25 lakh per FY is exempt (aggregate across all listed equity, equity MFs, REIT/InvIT units)
- LTCG above Rs 1.25 lakh is taxed at 12.5% without indexation
- STCG is taxed at 20% (flat rate, not slab)
- STT (Securities Transaction Tax) is paid at the time of sale on the exchange (0.025% on sell side for REIT/InvIT units)
- TDS on capital gains is not directly deducted at source for exchange transactions — the NRI must pay via advance tax or at the time of ITR filing
Adjusted Cost of Acquisition
Remember the return of capital component mentioned earlier? This is where it impacts you. Your cost of acquisition for capital gains purposes is:
Adjusted Cost = Original purchase price - Cumulative return of capital received
If you bought REIT units at Rs 300 per unit and received Rs 20 per unit as return of capital over the holding period, your adjusted cost is Rs 280. If you sell at Rs 350:
- Capital gain = Rs 350 - Rs 280 = Rs 70 per unit (not Rs 50 as you might initially think)
This is a commonly missed calculation that can lead to under-reporting of capital gains.
Unlisted or Off-Market Transactions
If REIT/InvIT units are sold in an off-market transaction (which is rare but possible):
- LTCG is taxed at 12.5% without indexation (for units held more than 36 months if off-market)
- STCG is taxed at slab rates
- No STT is paid, so concessional rates under Section 111A/112A do not apply
Major REITs and InvITs Available in India (2026)
REITs
| REIT | Underlying Assets | Listed Since | Typical Distribution Yield |
|---|---|---|---|
| Embassy Office Parks | Office parks (Bengaluru, Mumbai, Pune, NCR) | 2019 | 6-7% |
| Mindspace Business Parks | IT parks (Hyderabad, Mumbai, Pune, Chennai) | 2020 | 6-7% |
| Brookfield India Real Estate | Office spaces (NCR, Mumbai, Kolkata) | 2021 | 5-6% |
| Nexus Select Trust | Retail malls (multiple cities) | 2023 | 6-7% |
InvITs
| InvIT | Underlying Assets | Listed Since | Typical Distribution Yield |
|---|---|---|---|
| IndiGrid Trust | Power transmission lines | 2017 | 10-12% |
| IRB InvIT Fund | Road/highway BOT assets | 2017 | 7-9% |
| PowerGrid InvIT | Power transmission (PGCIL assets) | 2021 | 8-10% |
| India Grid Trust | Additional transmission assets | Various | 9-11% |
Note: Distribution yields are indicative and vary quarter to quarter. InvITs generally offer higher yields than REITs because of the interest-heavy nature of infrastructure assets.
NRI-Specific Considerations
FEMA and Demat Account Requirements
NRIs can invest in listed REIT/InvIT units through their NRI demat account (linked to NRE or NRO trading account). The investment follows the Portfolio Investment Scheme (PIS) route through a designated bank.
- NRE account: Investment and returns are fully repatriable
- NRO account: Investment from Indian-source funds; repatriation subject to USD 1 million cap
- No RBI approval needed for purchasing listed REIT/InvIT units on the exchange (treated like listed equity)
Distribution Credit
Distributions are credited directly to the bank account linked to your demat account. TDS is deducted before credit. Ensure your NRE/NRO bank account details are correctly updated with your depository participant.
Form 15CA/15CB for Repatriation
If REIT/InvIT sale proceeds are in an NRO account and you want to repatriate them, the standard 15CA/15CB process applies (same as for any NRO repatriation).
REITs/InvITs vs Direct Property for NRIs: Tax Comparison
| Parameter | Direct Property | REIT/InvIT |
|---|---|---|
| Minimum investment | Rs 30-50 lakh+ | Rs 300-400 per unit |
| Liquidity | Very low (months to sell) | High (sell on exchange in seconds) |
| TDS on income | 30% on rent (NRI) | 20-30% on distribution (component-wise) |
| Capital gains (LTCG) | 12.5% or 20% with indexation | 12.5% (listed units) |
| Property management | Your headache | Managed by REIT/InvIT manager |
| Repatriation | Complex (15CA/15CB, USD 1M cap) | Sale proceeds in demat — standard equity repatriation |
| FEMA compliance | Complex (property purchase restrictions) | Simple (like buying listed shares) |
| Diversification | Single property, single location | Portfolio of properties/assets |
Frequently Asked Questions
Can NRIs from the US invest in Indian REITs?
Yes. NRIs from all countries, including the US, can invest in listed Indian REITs and InvITs through their NRI demat and trading accounts. There are no FEMA restrictions on NRI investment in listed REIT/InvIT units. US-based NRIs should also check PFIC (Passive Foreign Investment Company) implications with their US tax advisor, as Indian REITs may be classified as PFICs under US tax law.
Is TDS on REIT distributions the final tax?
No. TDS is an advance payment of tax. If your total Indian income is below the basic exemption limit, or if TDS exceeds your actual tax liability, you can file an ITR and claim a refund of excess TDS.
How do I track the return of capital component for cost adjustment?
REITs and InvITs publish distribution breakups in their quarterly results and on the BSE/NSE websites. Maintain a spreadsheet tracking each distribution's component-wise breakup and reduce your cost basis accordingly. This is essential for accurate capital gains computation when you sell.
Are REIT/InvIT distributions eligible for DTAA benefits?
The interest component of REIT/InvIT distributions may be eligible for a lower TDS rate under a DTAA (e.g., 15% under India-US DTAA for interest, instead of 30%). To claim this, submit Form 10F and Tax Residency Certificate to the REIT/InvIT or your broker. In practice, this can be administratively challenging, and some REITs may not accommodate DTAA claims at the TDS stage — you may need to file an ITR to claim the differential.
What is the minimum investment in a REIT or InvIT?
Listed REIT/InvIT units trade on the exchange like shares. You can buy as little as one unit. Unit prices typically range from Rs 250 to Rs 500 per unit. There is no minimum lot size for secondary market purchases (primary IPO may have minimum lot sizes).
Can I invest in REITs through NRE account?
Yes. Investment through NRE account makes the investment and returns repatriable. Both purchase and sale happen through the NRE-linked demat and trading account.
MKW Advisors Recommendation
REITs and InvITs are among the most tax-efficient and operationally simple ways for NRIs to access Indian real estate and infrastructure. Compared to direct property ownership — with its TDS headaches, tenant management, repatriation complexity, and illiquidity — REIT/InvIT units offer diversification, professional management, and stock-exchange liquidity.
Three things to get right:
- Track the distribution breakup meticulously — your tax liability and future capital gains depend on correctly classifying each component
- File ITR to claim TDS refund — NRI TDS rates on distributions are often higher than actual liability
- Use NRE account for investment if you want full repatriation freedom on both distributions and sale proceeds
For NRIs building a long-term India income portfolio, a mix of REITs (commercial real estate exposure, 6-7% yield) and InvITs (infrastructure exposure, 8-12% yield) provides a compelling alternative to physical property.
Interested in building a REIT/InvIT portfolio? MKW Advisors — NRI Tax Desk provides investment tax advisory and ITR filing for NRI REIT/InvIT investors. Contact us for a consultation.
Disclaimer: This guide is for informational purposes only and does not constitute investment, legal, or tax advice. Consult a qualified Chartered Accountant and SEBI-registered investment advisor for advice specific to your situation.