REITs (Real Estate Investment Trusts) offer a practical and rewarding alternative for investors seeking exposure to real estate without the complexities of direct ownership. In recent years, investors have begun exploring alternative routes to capitalize on real estate growth. REITs have emerged as a practical and rewarding option for those seeking exposure to real estate without the complexities of direct ownership. In India, REITs have made it easier for retail investors to access income-generating commercial properties with relatively low capital requirements and high liquidity. Globally, REITs have demonstrated strong performance. A CEM Benchmarking study found that REITs delivered the second-highest average annual return among 12 major asset classes.

As India’s REIT market matures, now is an opportune time to understand how to invest in REITs, their advantages, and their role in building a balanced investment portfolio. Let’s get started! 

TL;DR

• Understand what REITs are and how they function in the Indian investment landscape.

• Discover the structure and operation of REITs, including the roles of sponsors, trustees, and management companies.

• Get a step-by-step guide on how to invest in REITs in India, including requirements and the trading process.

• Explore the tax implications for REIT investors, including dividend taxation, TDS, and the relevance of Section 115BAA.

• Discover the advantages of REITs, including low entry costs, high liquidity, passive income, and portfolio diversification.

• Find out why REITs can be a valuable addition to a balanced and income-generating investment portfolio.

What are Real Estate Investment Trusts (REITs)?

Real Estate Investment Trusts (REITs) are pooled investment vehicles that enable individuals to invest in large-scale, income-generating real estate assets, such as commercial office spaces, shopping malls, and industrial parks, without directly purchasing or managing properties. 

Functionally, REITs operate much like mutual funds. While mutual funds pool investor money to invest in stocks or bonds, REITs pool capital to invest specifically in real estate assets. These trusts generate income primarily through leasing and renting out commercial properties, which is then distributed among investors as dividends.

REIT was introduced in India by the Securities and Exchange Board of India (SEBI) in 2014 to offer transparency, liquidity, and regular income to investors. REITs are listed on the National Stock Exchange and Bombay Stock Exchange, which means:

• You can buy and sell REIT units just like shares

• Prices are determined by market demand and supply

• They offer high liquidity compared to traditional real estate investments

What are the Advantages of Investing in REITs? 

In India, real estate is traditionally capital-intensive and illiquid. REITs provide a modern, accessible, and regulated route to property-backed income and growth. Here are the key advantages of investing in REITs:

• Low Minimum Investment Requirement: Unlike buying physical real estate, which typically requires lakhs of rupees, REITs can be purchased for as little as ₹10,000–₹15,000.

• High Liquidity: Because REITs are listed on stock exchanges (such as NSE and BSE), investors can easily buy or sell units, just like shares.

• Portfolio Diversification: REITs invest in a variety of commercial properties, including offices, IT parks, and business hubs, across multiple cities.

• Regular Income through Dividends: REITs are required to distribute their net income as dividends, providing investors with a steady income stream, typically on a quarterly basis.

• Professional Management: REIT assets are managed by experienced real estate professionals, ensuring efficient operations, high occupancy, and long-term value creation.

• Transparency and Regulatory Oversight: Regulated by SEBI, REITs must adhere to strict disclosure norms, publish their financial statements regularly, and undergo regular audits, thereby enhancing investor confidence.

• Inflation Hedge: As rents generally increase over time, REITs often provide rising income streams, which help protect purchasing power in the long run.

• Tax Efficiency: Depending on the REIT's structure and investor category, specific income components (like interest or capital return) may be tax-exempt or taxed at a lower rate.

REITs blend the stability of real estate with the liquidity and flexibility of equities, making them a powerful addition to any diversified investment portfolio. Before you start investing, it’s essential to understand how REITs are structured and how they function behind the scenes to generate income for their investors.

Structure and Mechanism of REITs: How They Work

REITs are designed to simplify real estate investing while ensuring regulatory oversight, income generation, and professional asset management. Below, we have explained the key components and how they work together. 

Key Participants in a REIT Structure

A REIT in India typically consists of three main entities:

1. Sponsor

Sponsors are the entities or groups that establish the REIT and contribute the initial real estate assets. Sponsors usually hold a minimum stake in the REIT to ensure a long-term commitment.

2. REIT Trustee

A registered trust (regulated by SEBI) that legally owns the assets on behalf of all unitholders (investors). The trustee ensures that the REIT complies with relevant regulations and protects the interests of its investors.

3. Management Company (Manager)

This company manages the REIT’s real estate portfolio. It handles leasing, maintenance, tenant relations, asset acquisitions, and overall strategy to maximize returns.

Ownership and Role of the Trust

All real estate assets under a REIT are owned by the trust, which acts as a custodian for investors. Investors do not own the properties directly; instead, they hold units in the trust, similar to owning shares in a mutual fund. As per SEBI guidelines, the trust ensures that at least 80% of its assets are invested in completed, revenue-generating properties.

Responsibilities of the Management Company

The management company plays a central role in ensuring the REIT performs efficiently and delivers consistent returns. Its key responsibilities include:

• Asset Management: Identifies, acquires, leases, and oversees the portfolio of commercial properties to ensure they remain income-generating and well-maintained.

• Maximizing Occupancy and Rental Yields: Proactively maintains high occupancy rates, negotiates leases with tenants, and ensures optimal rental income from each asset.

• Strategic Decision-Making: Making data-driven decisions regarding buying, selling, or upgrading properties based on market trends and long-term growth potential.

• Regulatory Compliance and Transparency: This function ensures that the REIT operates within SEBI guidelines and maintains investor trust through timely financial disclosures, performance reports, and compliance filings.

This hands-on management approach enables investors to earn passive income from premium real estate, without the stress of property upkeep, tenant issues, or market monitoring.

Investor Participation and Income Distribution

Investors can buy REIT units on stock exchanges (like NSE or BSE), similar to purchasing shares. REITs in India are mandated to distribute at least 90% of their Net Distributable Cash Flow (NDCF), which includes rental income minus operating expenses, as dividends to investors, at least twice a year. 

Distribution Mechanisms for Net Distributable Cash Flow 

NDCF refers to the income left after deducting operational expenses, interest payments, and other mandatory costs from the rental income generated by the REIT’s property portfolio. The distributable income typically includes:

• Rental income from leased properties

• Interest income from investments

• Capital gains from asset sales (if applicable)

Payouts to investors can take the form of:

• Dividends (taxable or tax-exempt, depending on REIT structure and DDT implications)

• Interest income

• Return of capital in some instances

This regular income stream makes REITs attractive to income-focused investors, offering more predictability than typical equity investments. While the benefits of REITs are attractive, understanding the tax structure is equally crucial to make informed investment decisions.

Also see: 5 Simple Steps to Start Investing in Real Estate

Tax Implications for REIT Investors in India

The taxation framework for REITs in India is designed to ensure transparency, avoid double taxation, and provide clarity for investors. Let’s understand how various income components from REITs are taxed. 

Taxation Framework Under Section 115BAA

Section 115BAA of the Income Tax Act, 1961, primarily applies to domestic companies and their option to choose a concessional tax rate. While this doesn’t directly impact retail investors, it affects REIT structure and dividend distribution:

• When the REIT's SPV (Special Purpose Vehicle) or underlying company opts for taxation under Section 115BAA, it forgoes certain exemptions, including the exemption from dividend distribution tax (DDT).

• As a result, dividends received by the REIT from such SPVs are taxable in the hands of investors, unlike earlier when they were exempt.

Taxation on Dividends Received from REITs

• If the underlying SPV has opted for 115BAA, the entire dividend income is taxable to the investor at their applicable slab rate.

• If the underlying SPV has not opted for 115BAA, then the dividend income may be exempt, and the investor is not liable for tax. 

Example: If a REIT declares ₹1,000 in dividends and the SPV has opted for 115BAA, the full ₹1,000 is added to the investor’s taxable income and taxed as per their income slab.

TDS (Tax Deducted at Source) on REIT Income

TDS is applicable at 10% on dividend or interest income paid to resident investors. Nonresident investors' TDS rate may vary (typically 5% on interest and 10% or more on dividends), depending on DTAA (Double Taxation Avoidance Agreement) conditions.

Note: If your PAN is not updated with the REIT or depository participant, the TDS may be deducted at 20% as per Section 206AA.

Understanding these tax implications ensures that you can accurately estimate post-tax returns from your REIT investments and avoid any surprises during filing. 

Note: Always consult a tax advisor to align your investment with your overall tax planning strategy.

Looking for expert real estate solutions? BCD India delivers top-notch construction, development, and project management services to bring your vision to life. 

Now that you understand REITs' structure, benefits, and tax implications, let’s explore how you can actually start investing in them.

Also see: Top Cities for Real Estate Investment in India 2025

How to Invest in REITs in India: A Step-by-Step Guide

Investing in REITs in India is transparent because they are listed on major stock exchanges like the NSE and BSE. Whether you're a seasoned investor or just starting out, here’s a clear step-by-step process to begin your REIT investment journey. 

1. Choose a Listed REIT

Currently, there are a few major REITs listed in India:

• Embassy Office Parks REIT

• Mindspace Business Parks REIT

• Brookfield India Real Estate Trust

Research their portfolio, past performance, dividend history, and market outlook before deciding where to invest.

2. Open a Demat and Trading Account

To buy REIT units, you need:

• A Demat account (to hold REIT units)

• A Trading account (to place buy/sell orders)

If you already invest in stocks or mutual funds, you can use the same broker platform (like Zerodha, Groww, ICICI Direct, Upstox, etc.) to invest in REITs.

3. Search and Place Your Order

To start investing: 

• Log in to your trading platform

• Search for the REIT symbol 

• Enter the quantity and place an order to buy at the market or a limit price

• Once executed, the units will be credited to your Demat account

4. Track Performance and Dividend Payouts

Your trading dashboard allows you to monitor your REIT units. Check for quarterly dividend announcements, occupancy rates, and NAV updates.

Note: Dividends are usually credited directly to your linked bank account. 

5. Reinvest or Exit as Needed

You can sell your REIT units anytime through the stock exchange, just like equity shares.

• Consider reinvesting dividends to compound returns over time

• Track market trends and real estate sector performance to make timely decisions

Minimum Investment Requirement

• As per SEBI guidelines, the minimum investment amount in a REIT IPO is ₹10,000–₹15,000. 

• For secondary market purchases, you can even invest in a single unit, depending on the current market price. 

You might also like: How to Become a Licensed Real Estate Agent in India

Final Thoughts

With low entry barriers, regular income, portfolio diversification, and stock exchange liquidity, REITs bridge the gap between real estate ownership and the convenience of the financial market.

Of course, like any investment, REITs come with considerations, such as market-linked returns, tax implications, and sector-specific risks. However, with the correct understanding and strategic planning, they can serve as a powerful asset class, especially for investors seeking passive income and long-term stability.

Want to make smarter decisions about REITs and stay updated on real estate trends, risk protection, and developments? Subscribe to Ashwinder R Singh’s newsletter for expert insights, practical advice, and updates on the latest real estate investment and trends. 

FAQs

1. Which REITs are currently listed in India?

As of now, there are four REITs listed on Indian stock exchanges: Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India Real Estate Trust, Nexus Select Trust.

2. What types of assets can Indian REITs own?

Indian REITs are allowed to invest in income-generating real estate assets such as: Commercial office spaces, Retail malls and shopping centres, Warehouses and industrial parks. 

They cannot invest in vacant land or speculative landbanks and are restricted to owning assets located within India only.

3. What is the 5/50 Rule for REITs?
The 5/50 rule, as per SEBI guidelines, ensures diversification in a REIT portfolio. It states that: Not more than 5% of the value of a REIT’s assets can be invested in a single project, And not more than 50% of the total value can come from assets contributed by related parties.

4. Can I buy just one unit of a REIT in India?

Yes, investors can typically buy a single unit of a listed REIT through the secondary market. There is no high minimum threshold when purchasing from the stock exchange, making REITs highly accessible for small and retail investors.