1How is REIT income taxed?
By component — the interest part is taxable at your slab, the dividend part depends on the structure, and the return-of-capital part isn't taxed on receipt but reduces your cost. Capital gains apply when you sell units.
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ArticleREITs and InvITs let you invest in real estate and infrastructure income, but their distributions have multiple components that are taxed differently. Here's how REIT and InvIT income is taxed. Exact capital-gains rates are confirmed for your case.
Reviewed by CA Harika Chebolu, FCA · Last updated 2026-06-13
Quick answer
REIT and InvIT payouts come in parts — interest, dividend and capital repayment — each taxed differently. Here's how to handle them.
A REIT or InvIT distribution is typically split into parts — interest, dividend, and return of capital (repayment of debt/capital). Each component is taxed differently, so you can't treat the whole payout as one type of income. Your statement breaks down the components.
The interest component of the distribution is generally taxable at your slab rate. The dividend component's treatment depends on the structure of the underlying entity. So a large part of REIT/InvIT income is taxed as ordinary income at your slab.
The portion that's a return of capital is generally not taxed when received, but it reduces your cost of the units — which means a larger capital gain when you eventually sell. So it defers tax rather than removing it.
When you sell REIT or InvIT units, the gain is taxed as a capital gain, short-term or long-term by holding period, under the applicable rules. Track your adjusted cost (after any return-of-capital) to compute the gain correctly.
Because the payout is split, reconcile your REIT/InvIT statement and your AIS, and report each component under the right head. Treating the whole distribution as one type — or missing a component — is a common, avoidable error.
By component — the interest part is taxable at your slab, the dividend part depends on the structure, and the return-of-capital part isn't taxed on receipt but reduces your cost. Capital gains apply when you sell units.
Not when received — but it reduces your cost of the units , increasing the capital gain when you eventually sell. So it defers tax rather than removing it.
As capital gains, short-term or long-term by holding period , under the applicable rules. Track your adjusted cost after any return-of-capital to compute the gain correctly.
Investing in REITs or InvITs? Write to the firm and we'll report each component correctly and apply the current rates.