Disclaimer: The taxability of REIT distributions differs across investor categories and hence we request all the investors to contact their respective financial / tax advisor(s) for the tax positions to be adopted by them with regard to the REIT distributions. In general, Indian REIT distributions are classified as (i) dividend, or (ii) interest, or (iii) amortization of debt received from the Special Purpose Vehicles (“SPVs”) or (iv) other income or (v) a combination of the above.

• Amount of income in the nature of dividend – Dividend income is not taxable in the hands of the unitholders as per Section 10(23FD) read with Section 115UA of the Income-tax Act, 1961 if the SPVs of the REIT have not opted for the lower corporate tax regime under section 115BAA of the Act. No tax is deductible on this portion of distribution.
• Amount of income in the nature of interest – Interest income is taxable in the hands of the unitholders. Please note that tax is deductible at applicable rates under Section 194LBA of the Income-tax Act, 1961.
• Proceeds from amortization of debt received from SPVs of the REIT – SPV loan amortization refers to repayment of loans by SPVs to the REIT. Please note that this is a repayment of debt extended by REIT to the SPVs. In case where aggregate sum of such “amortisation of SPV debt” component exceeds issue price of the unit, the same is taxed in the hands of the unitholders as “specified sum” under the head income from other sources as per the provisions of Section 56(2)(xii) of the Income-tax Act, 1961. The tax withholding provisions are applicable only to non-residents under section 195 of the Income-tax Act, 1961 and get triggered only once the aggregate of the sum received as “amortisation of debt” exceeds the issue price.
• Further, in computing capital gains on the sale of units of a REIT, the cost of acquisition of such units shall be reduced by distribution received by a unitholder in the form of amortization of debt, which is not subject to tax under section 56(2)(xii) of the Act, i.e., such portion which does not qualify as “specified sum” under the provisions of section 56(2)(xii) of the Act.
• Other income – Other Income refers to the interest income earned by the REIT on fixed deposits, income earned on sale of mutual funds etc. The Indian REIT pays taxes on such income and this income is exempt in the hands of the unitholders under section 10(23FD) of the Income-tax Act, 1961 and consequently, no tax is deductible on such income.