By Vikram Mehta | Updated March 2026
What Are REITs and InvITs?
A Real Estate Investment Trust (REIT) is a SEBI-registered business trust that owns, operates, and manages income-producing commercial real estate — primarily Grade A office parks, malls, and warehouses. An Infrastructure Investment Trust (InvIT) is a similar vehicle that holds infrastructure assets such as toll roads, power transmission lines, gas pipelines, and telecom towers. Both are governed by dedicated SEBI regulations notified on September 26, 2014: the SEBI (Real Estate Investment Trusts) Regulations, 2014 and the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
For a foreign investor, REITs and InvITs offer something previously impossible in India: liquid, listed exposure to physical assets without the complexities of direct foreign direct investment in real estate (which is heavily restricted under FEMA) or infrastructure (which involves lengthy regulatory approvals). As of September 2025, India's 5 listed REITs and 5 listed InvITs collectively manage assets worth approximately INR 9.25 lakh crore, and the Nifty REITs & InvITs index delivered 25.48% total returns in 2025 — more than double the Nifty 50's 11.88% return.
Foreign investment in REIT and InvIT units is permitted under both the automatic route (FDI) and the FPI route, with no sectoral cap on unitholding. This makes them one of the most accessible India investment vehicles for overseas capital.
Legal Basis
- SEBI (Real Estate Investment Trusts) Regulations, 2014 — Notified September 26, 2014; amended multiple times, most recently the Second Amendment Regulations, 2025 (September 1, 2025). Govern registration, listing, asset requirements, sponsor obligations, distributions, and governance for REITs.
- SEBI (Infrastructure Investment Trusts) Regulations, 2014 — Notified September 26, 2014; most recently amended by the Third Amendment Regulations, 2025. Parallel framework for InvITs with infrastructure-specific provisions.
- Section 115UA of the Income Tax Act, 1961 — Provides the pass-through taxation framework for business trusts (REITs and InvITs). Income components — interest, dividend, rental — flow through to unitholders without entity-level tax (subject to conditions).
- FEMA (Non-Debt Instruments) Rules, 2019 — Rule 21 permits FDI in units of REITs and InvITs under the automatic route. FPIs can invest under the general route or the Voluntary Retention Route (VRR).
- SEBI Circular (November 28, 2025) — Reclassified REITs as equity-related instruments for mutual funds and Specialised Investment Funds (SIFs), effective January 1, 2026. InvITs remain classified as hybrid instruments.
Structure: How REITs and InvITs Work
Both REITs and InvITs operate as business trusts with four key parties:
The Four-Party Structure
| Party | Role | REIT Requirements | InvIT Requirements |
|---|---|---|---|
| Sponsor | Initiates the trust, contributes seed assets, maintains minimum unitholding | Minimum 25% unitholding for 3 years post-listing; net worth INR 100 crore (collectively) / INR 20 crore (individually); max 3 sponsors | Minimum 15% unitholding for 3 years; similar net worth thresholds |
| Manager | Manages day-to-day operations, asset strategy, distributions | Minimum net worth INR 10 crore; at least 2 employees with 5+ years real estate experience | Minimum net worth INR 10 crore; infrastructure sector experience required |
| Trustee | Holds assets on behalf of unitholders, oversees the manager | Must be a SEBI-registered debenture trustee; cannot be an associate of sponsor or manager | Same independence requirements |
| SPV(s) | Special purpose vehicles that directly own the underlying assets | REIT must hold controlling interest and at least 50% equity in each SPV | InvIT must hold controlling interest; concession-based SPVs common (toll roads, highways) |
The trust structure ensures that the sponsor cannot unilaterally control asset decisions — the trustee has an independent oversight role, and unitholders vote on material matters including related-party transactions and changes to the investment manager.
Asset Requirements
A REIT must hold assets valued at not less than INR 500 crore at the time of initial offer. At least 80% of asset value must be in completed, revenue-generating properties. The remaining 20% can be in under-construction properties, listed/unlisted debt of real estate companies, equity of real estate companies, government securities, or money market instruments.
An InvIT has a similar INR 500 crore minimum asset value for public InvITs. The initial offer size must be at least INR 250 crore. Infrastructure assets can include toll roads, power plants, gas pipelines, telecom towers, warehouses, and other infrastructure as defined under the Harmonised Master List.
Listing Requirements and Investment Access
Public REITs and InvITs
| Parameter | REIT | InvIT (Public) | InvIT (Private Placement) |
|---|---|---|---|
| Minimum asset value | INR 500 crore | INR 500 crore | No minimum prescribed |
| Minimum offer size | INR 250 crore (25% of total units) | INR 250 crore | N/A |
| Minimum number of unitholders | 200 (public) | 20 (public) | No minimum |
| Minimum subscription per investor | INR 10,000–15,000 (1 lot) | INR 10,000–15,000 (1 lot, public) | INR 25 lakh (reduced from INR 1 crore in September 2025) |
| Listing requirement | Mandatory on recognised stock exchange | Mandatory | Mandatory |
| Distribution frequency | At least 90% of net distributable cash flow, semi-annually | At least 90% of net distributable cash flow, semi-annually | As per trust deed |
SEBI's September 2025 amendment reduced the minimum investment for privately placed InvITs from INR 1 crore to INR 25 lakh, substantially widening access for HNIs and family offices.
Taxation of Distributions
REIT and InvIT distributions are not a single income stream — they comprise multiple components, each taxed differently under Section 115UA of the Income Tax Act. This is where the complexity lies for foreign investors:
Tax Treatment by Distribution Component
| Component | Resident Unitholder | Non-Resident Unitholder | TDS Rate (Resident) | TDS Rate (Non-Resident) |
|---|---|---|---|---|
| Interest income | Taxable at slab rates | Taxable at 5% (or DTAA rate, if lower) | 10% | 5% |
| Dividend (SPV not under Section 115BAA) | Exempt | Exempt | Nil | Nil |
| Dividend (SPV opted for Section 115BAA) | Taxable at slab rates | Taxable at 10% (or DTAA rate) | 10% | 10% |
| Rental income (REIT only) | Taxable at slab rates | Taxable at slab rates (or DTAA rate) | 10% | Rates in force |
| Repayment of debt / return of capital | Not taxable on receipt; reduces cost of acquisition for capital gains | Same treatment | Nil | Nil |
The pass-through structure means that when an SPV pays interest to the REIT/InvIT, there is no entity-level tax at the trust level. The income is taxed only in the unitholder's hands. However, if the SPV has opted for the concessional corporate tax rate under Section 115BAA (25.17%), the dividend distributed by that SPV to the trust is taxable in the unitholder's hands.
Foreign investors should note that India's DTAAs may reduce withholding rates on interest and dividend components. For example, the India-Singapore DTAA can reduce interest withholding to as low as 15% (though the domestic rate of 5% is already lower). The India-Netherlands DTAA provides a 10% dividend rate. Investors must furnish Form 10F and a Tax Residency Certificate to claim treaty benefits.
Capital Gains on Sale of Units
Gains from selling listed REIT/InvIT units on stock exchanges are taxed as follows (effective July 23, 2024 onwards):
- Short-term capital gains (holding period 12 months or less): 20%
- Long-term capital gains (holding period exceeds 12 months): 12.5%, with an annual exemption of INR 1.25 lakh
For unlisted units (applicable to privately placed InvITs), the holding period for LTCG classification is 24 months, and the LTCG rate is 12.5% without indexation benefit.
Foreign Investment in REIT and InvIT Units
Foreign investment is permitted through two routes:
FDI Route (Automatic)
Under the FEMA (Non-Debt Instruments) Rules, 2019, foreign investors can purchase REIT and InvIT units under the automatic route — no prior RBI or government approval is required. There is no sectoral cap on foreign holdings in REIT/InvIT units. The investment must be reported in the FLA Return by the trust.
FPI Route
Registered Foreign Portfolio Investors can purchase units on stock exchanges or participate in initial offers. FPIs can also invest through the Voluntary Retention Route (VRR), which offers operational flexibility in exchange for a minimum retention period. No prior registration beyond standard FPI registration is needed.
This dual-route access makes REIT/InvIT units significantly more accessible than direct real estate investment, which is restricted to NRIs/OCIs for residential property and prohibited for most foreign investors for commercial property under FEMA.
Listed REITs and InvITs in India (as of 2025)
Listed REITs
| REIT | Sponsor | Asset Type | Portfolio Size | Market Cap (Approx.) |
|---|---|---|---|---|
| Embassy Office Parks REIT | Embassy Group / Blackstone | Office parks | 51.1 million sq ft | INR 33,000 crore |
| Mindspace Business Parks REIT | K. Raheja Corp / Blackstone | Office parks | 34.4 million sq ft | INR 21,000 crore |
| Brookfield India Real Estate Trust | Brookfield Asset Management | Office campuses | 27.1 million sq ft | INR 26,000 crore |
| Nexus Select Trust | Blackstone | Retail malls | 10.4 million sq ft | INR 24,000 crore |
| Knowledge Realty Trust | Mapletree / RMZ | Office parks | 38 million sq ft | INR 15,000 crore |
Listed InvITs
| InvIT | Sponsor | Asset Type |
|---|---|---|
| IRB InvIT Fund | IRB Infrastructure | Toll roads |
| India Grid Trust (IndiGrid) | Sterlite Power / KKR | Power transmission |
| National Highways Infra Trust (NHIT) | NHAI | Highway BOT projects |
| Highways Infrastructure Trust | IRB Infrastructure | Toll roads |
| Data Infrastructure Trust | Brookfield / Tower Infrastructure Trust | Telecom towers |
The combined AUM of listed REITs alone exceeds INR 2.4 lakh crore, with portfolios spanning over 175 million square feet of Grade A commercial and retail space. The four original listed REITs distributed INR 1,559 crore to unitholders in Q1 FY26 alone.
REIT vs InvIT: Key Differences
| Feature | REIT | InvIT |
|---|---|---|
| Underlying assets | Commercial real estate (offices, malls, warehouses) | Infrastructure (roads, power, telecom, pipelines) |
| SEBI classification (from Jan 2026) | Equity-related instrument | Hybrid instrument |
| Revenue model | Rental income from tenants | Toll collections, capacity charges, tariffs |
| Asset value floor (public) | INR 500 crore | INR 500 crore |
| Sponsor minimum holding | 25% for 3 years | 15% for 3 years |
| Concession-based assets | Rare | Common (BOT toll roads with 15-30 year concessions) |
| Rental income distribution | Taxed at slab rates, 10% TDS | Taxed at maximum marginal rate at trust level |
| Typical yield | 6-8% distribution yield | 8-12% distribution yield |
| Liquidity | Higher trading volumes | Lower trading volumes |
How This Affects Foreign Investors in India
REITs and InvITs solve three major problems for foreign investors:
- Regulatory access: Direct foreign investment in Indian real estate is restricted to NRIs for residential property and is prohibited for commercial property. REITs provide a compliant, listed route to own commercial real estate exposure.
- Liquidity: Unlike direct property ownership (which involves stamp duty, registration, and months of transfer processes), REIT/InvIT units trade on stock exchanges and can be bought or sold in seconds.
- Tax efficiency: The pass-through structure avoids double taxation. Interest income is taxed at just 5% for non-residents (versus 40% corporate tax if a foreign company owned property directly). Dividend from non-115BAA SPVs is fully exempt.
Foreign investors holding units through the FPI route can also benefit from double taxation relief in their home country, as Indian TDS can be credited against home-country tax liability.
Common Mistakes
- Treating the entire REIT/InvIT distribution as a single income stream for tax purposes. Distributions comprise interest, dividend, rental, and capital repayment components — each taxed at different rates. Misclassifying the full distribution as "dividend" (as in many other countries) leads to incorrect tax filings and missed treaty benefits on the interest component.
- Not claiming DTAA benefits on interest distributions. The domestic withholding rate on interest (5% for non-residents) is already low, but some DTAAs may provide additional relief. More importantly, the Form 15CA/15CB process must be completed for each distribution remittance, and failure to furnish Form 10F and TRC means automatic higher withholding.
- Ignoring the cost-of-acquisition reduction from capital repayment components. When a REIT/InvIT distributes "repayment of debt" or "return of capital," it is not taxed on receipt — but it reduces the unitholder's cost of acquisition. Investors who forget this adjustment face higher-than-expected capital gains tax when they sell their units.
- Assuming REIT/InvIT units are equivalent to mutual fund units for tax purposes. Despite SEBI's January 2026 reclassification of REITs as equity-related instruments for mutual funds, the income tax treatment remains governed by Section 115UA (business trusts), not Section 10(23D) (mutual funds). The reclassification affects MF investment limits, not investor taxation.
- Overlooking FLA Return filing obligations. Foreign investors (FDI route) who hold REIT/InvIT units must ensure the trust files the Foreign Liabilities and Assets Return by July 15 each year. Non-filing attracts penalties under FEMA — up to three times the amount involved.
Practical Example
Meridian Capital Pte Ltd, a Singapore-based family office, wants to invest INR 50 crore in Indian commercial real estate. It evaluates two options:
Option A: Direct property purchase — Not permitted. FEMA prohibits non-resident entities from purchasing commercial real estate in India. Even if structured through a wholly-owned subsidiary, the subsidiary would face 25.17% corporate tax on rental income plus 20% dividend withholding on repatriation (reduced to 10% under India-Singapore DTAA). Effective tax rate: approximately 35%.
Option B: REIT units — Meridian purchases units of Embassy Office Parks REIT on the NSE through its FPI registration. The REIT distributes INR 4.5 crore annually (9% yield) comprising: INR 2.7 crore as interest (60%), INR 0.9 crore as exempt dividend (20%), and INR 0.9 crore as capital repayment (20%).
- Interest component: INR 2.7 crore x 5% TDS = INR 13.5 lakh withheld. India-Singapore DTAA rate for interest is 15%, but the domestic rate (5%) is lower and applies.
- Dividend component: INR 0.9 crore — fully exempt (SPV has not opted for Section 115BAA). Zero tax.
- Capital repayment: INR 0.9 crore — not taxable on receipt. Cost of acquisition reduces by INR 0.9 crore per year.
- Effective tax rate: INR 13.5 lakh on INR 4.5 crore distribution = approximately 3%. Compare this to 35% under direct ownership.
When Meridian sells its units after 18 months at a 15% gain, the long-term capital gains (holding period exceeds 12 months for listed units) are taxed at 12.5% on gains exceeding INR 1.25 lakh.
Key Takeaways
- REITs and InvITs are SEBI-regulated business trusts offering listed, liquid exposure to Indian commercial real estate and infrastructure assets, with combined AUM exceeding INR 9.25 lakh crore
- Foreign investment is permitted under both the automatic (FDI) route and the FPI route with no sectoral cap on unitholding
- Distributions comprise multiple components — interest (5% TDS for non-residents), dividend (potentially exempt), rental income, and capital repayment — each taxed differently under Section 115UA
- Listed REIT/InvIT units qualify for 12.5% LTCG rate if held over 12 months, with an annual exemption of INR 1.25 lakh
- From January 2026, SEBI reclassified REITs as equity instruments for mutual fund allocation purposes, potentially increasing institutional demand and liquidity
- The pass-through structure delivers effective tax rates as low as 3-5% for foreign investors, compared to 35%+ for direct property ownership
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