Listed REIT payouts: how interest, dividend and repayment of debt are taxed under the Income-tax Act, 2025

Rules and rates as of 12 October 2026.

A listed REIT pays you every quarter, but the money that lands in your bank account is not one kind of income. The REIT's statement splits each payout into parts such as interest, dividend, rent and "repayment of debt", and the Income-tax Act, 2025 taxes each part differently. Here is how each part is treated from tax year 2026-27, with one real payout worked through.

Why REITs pay out so much

SEBI's REIT Regulations, 2014 (regulation 18(16)) require that not less than 90% of the REIT's net distributable cash flows be paid to unit holders, at least once every six months, within 15 days of the declaration. A similar 90% rule applies to cash moving up from the property-owning companies (the "special purpose vehicles", or SPVs) to the REIT. Embassy Office Parks REIT, used in the example below, pays every quarter.

The REIT itself is mostly a pass-through for tax. Under Schedule V of the 2025 Act, the interest and dividend it receives from its SPVs, and the rent from property it owns directly, are not taxed in the REIT's hands. The tax falls on you instead. Section 223(1) says each rupee you receive keeps the character it had in the REIT's hands, in the same proportion. That is why the split matters.

The four components, one by one

1. Interest

Interest the SPVs pay the REIT on loans it gave them. Fully taxable in your hands at your slab rate. For a resident, the REIT deducts TDS at 10% with no threshold (section 393(1), Table entry 4(ii); this replaces the old section 194LBA).

2. Dividend

Dividend the SPVs pay the REIT. Until now this was exempt for you only if the SPV stayed in the old corporate tax regime. If the SPV had opted for the concessional 22% regime (now section 200, formerly 115BAA), the dividend became taxable at your slab.

That link is being removed. The Taxation and Other Laws (Amendment) Bill, 2026 omits the dividend carve-out from Schedule V, so the dividend is exempt for you even where the SPV has opted for section 200. In exchange, such SPVs pay a 25% surcharge instead of 10%. The Bill text says it is deemed to have come into force on 1 April 2026, so it would cover the whole of tax year 2026-27. The Income Tax Department's FAQs explain the reasoning. Parliament passed the Bill in August 2026; we have not yet seen the gazette notification of the final Act, and the department's online copy of Schedule V still shows the old wording, so check the final text before you file.

3. Rental income

Rent the REIT earns on buildings it owns directly, not through an SPV. Taxable at your slab, with 10% TDS for residents under the same section 393 entry. Many REITs hold most assets through SPVs, so this part is often small or nil.

4. Repayment of debt (return of capital)

Often the largest slice. It is the SPVs paying back the loans the REIT gave them, and the REIT passing the cash on. It is not interest, dividend or rent. Since the Finance Act, 2023 it has had its own rule, now in section 92(2)(k) (formerly 56(2)(xii)):

• Add up all such payments received on a unit, in this and earlier years (A).
• Subtract the price at which the REIT issued the unit (B), and anything already taxed under this rule (C).
• If A − B − C is positive, that excess is taxed as "income from other sources" at your slab. If it is zero or negative, nothing is taxed now.

Note that B is the issue price, not what you paid on the exchange. Whatever is not taxed under this rule is subtracted from your cost of acquisition of the units (section 72(4)(a)). So it is not tax-free; it raises your capital gain when you sell.

Components compared

Component	Taxed in your hands?	TDS (resident)
Interest	Yes, slab rate	10%
Dividend, SPV in old regime	No (exempt)	None
Dividend, SPV opted for section 200	Exempt under the 2026 amendment (taxable at slab under the earlier text)	Check with the REIT's tax statement
Rental income	Yes, slab rate	10%
Repayment of debt	Only the excess over issue price; the rest cuts your cost	Not listed in the 393 entry

Worked example: one real quarter, 1,000 units

Embassy Office Parks REIT's distribution history shows its April to June 2026 payout (announced 30 July 2026, record date 4 August 2026) as ₹6.31 a unit: interest ₹0.37, repayment of debt ₹5.14, dividend ₹0.80. We use it only as an illustration.

For 1,000 units:

• Interest: 1,000 × ₹0.37 = ₹370
• Repayment of debt: 1,000 × ₹5.14 = ₹5,140
• Dividend: 1,000 × ₹0.80 = ₹800
• Total received before TDS: ₹6,310. TDS on interest: 10% × ₹370 = ₹37.

Tax on the payout. Only the interest is taxable now (dividend exempt as above; repayment of debt assumed well below issue price, so A − B − C is negative).

• In the 30% slab (new regime, income above ₹24 lakh, section 202): ₹370 × 30% = ₹111, before cess. That is 1.76% of the ₹6,310 received.
• In the 15% slab (new regime, income ₹12 lakh to ₹16 lakh): ₹370 × 15% = ₹55.50, or 0.88% of the payout.
• If the dividend were still taxable (an SPV under section 200, earlier text): (₹370 + ₹800) × 30% = ₹351 in the 30% slab; ₹175.50 in the 15% slab.

The ₹37 TDS counts against these amounts when you file.

The catch on sale. Say you bought the 1,000 units at ₹400 each (₹4,00,000, an assumed price). After this quarter your cost becomes ₹4,00,000 − ₹5,140 = ₹3,94,860. Sell later at ₹420 a unit (₹4,20,000) and your gain is ₹4,20,000 − ₹3,94,860 = ₹25,140, not ₹20,000. The ₹5,140 you did not pay tax on now shows up as gain.

When you sell the units

Units of a listed REIT are securities listed on a recognised exchange, so they become long-term after more than 12 months (section 2(101)(b) of the 2025 Act; Budget 2024 cut the period for listed business-trust units from 36 months to 12, with effect from 23 July 2024).

• Short-term, sold on the exchange with STT: 20% (section 196, formerly 111A). On the ₹25,140 above, that is ₹5,028.
• Long-term, STT paid on the sale: 12.5% on gains above ₹1,25,000 a year, counted together with listed shares and equity funds (section 198, formerly 112A). If ₹25,140 were your only such gain, no tax would be due on it.

What to keep track of

The REIT must give you a statement of the nature of each payout (section 223(5)). Keep each quarter's split, add up the repayment-of-debt amounts over the years, and note the unit's issue price from the REIT's offer document. Your broker's capital-gains report will usually show only your purchase price, not the reduced cost. A chartered accountant can confirm how the 2026 amendment and your own slab apply before you file.