REITs and InvITs for NRIs: Indian Real Estate and Infrastructure Income Without Buying a Single Flat

You want Indian real estate in your portfolio, but you are in Dubai or Toronto, and the thought of buying a flat in Bengaluru you have never stood inside, managing a tenant across nine time zones, then trying to extract the sale proceeds years later, is exactly the friction that keeps the money idle in your savings account. There is a cleaner way to own Indian commercial property and infrastructure: buy units of a listed Real Estate Investment Trust (REIT) or Infrastructure Investment Trust (InvIT) on the exchange, the way you would buy a share, and collect a quarterly distribution that behaves a lot like rent.

The buying is genuinely easy. The reason most NRIs stop short is the tax, and specifically one feature that no other listed instrument has: a single distribution cheque is legally three different kinds of income stitched together, and the Income-tax Act taxes each at a different rate with its own TDS rule. Read the split wrong and you either overpay or, worse, under-report and reduce your cost basis without realising it. This guide is about getting that split exactly right, plus the demat plumbing, the capital gains rules that moved in NRIs' favour in 2024 and were finally cleaned up in 2025, how this stacks against a physical flat, and how much actually comes home.

The 30-second answer: NRIs and OCIs buy listed Indian REITs and InvITs on the exchange through an NRI demat account funded from NRE (repatriable) or NRO (non-repatriable, USD 1 million per year). A distribution splits into three parts taxed differently: the interest component at 5% with 5% TDS under Sections 115A and 194LBA; the dividend component tax-free if the SPV has not opted into Section 115BAA, else 10% with 10% TDS; the return-of-capital component untaxed on receipt but it reduces your cost basis, taxed under Section 56(2)(xii) only once cumulative receipts cross your purchase price. On sale, units held over 12 months are long-term at 12.5% under Section 112A (first Rs 1.25 lakh exempt), short-term at 20% under Section 111A. The Finance Act 2025 fixed Section 115UA to lock in the 12.5% rate from AY 2026-27. DTAA relief applies, and you report the income at home too.

This guide assumes you already know what NRE and NRO accounts are and how the USD 1 million repatriation route works; if not, start with the NRE, NRO and FCNR accounts guide. What follows is the part that decides your after-tax yield: the three-way distribution split, the capital gains fix, and the repatriation arithmetic.

Why the structure exists, and why it dictates your tax

The names are off-putting and the mechanics are simpler than they sound, but you cannot skip the structure, because the structure is the reason your distribution is taxed three ways.

A REIT is a trust that owns income-producing real estate, in India almost entirely commercial: Grade-A office parks and, in one case, shopping malls. By SEBI regulation it must distribute at least 90% of its net distributable cash flow to unit holders, usually quarterly. An InvIT is the same skeleton pointed at infrastructure: power transmission lines, highways, gas pipelines, telecom towers, with cash from tariffs, tolls and availability payments instead of rent. Same 90% rule, same exchange listing, same trust-and-SPV plumbing.

That plumbing is the whole point. Neither trust holds the assets directly. They sit on top of Special Purpose Vehicles (SPVs), the operating companies that own the buildings and the power lines. Money reaches you only after passing through those SPVs in three specific legal forms: interest on loans the trust made to the SPV, dividends the SPV declared up to the trust, and repayment of that loan principal. Under Section 115UA the trust is a pass-through and pays no tax on the interest and dividend it routes to you; you do, and the tax follows the legal form, not the fact that all three feel like rent in your bank account. Hold that idea and the rest of this guide is just arithmetic.

For an NRI specifically, the case over a physical flat is liquidity, diversification, no management, and clean repatriation. A REIT unit sells on the exchange in seconds; a flat sold from abroad is a multi-month project. Embassy REIT alone spans over 50 million square feet across five cities, against one flat with one tenant in one tower. There are no tenant calls and no power-of-attorney holder you have to trust with your asset. And NRE-funded units, distributions and sale proceeds are fully repatriable with no paperwork drama. What you give up is real and worth naming: no home-loan leverage, no place you might one day live in or pass to your children, and no residential price upside, because Indian REITs are commercial.

The three-way split: where your real after-tax yield is decided

This is the section to slow down for, because it is where the money is and where almost every plain-English explanation fails by treating a distribution as one taxable lump.

When a REIT pays you, say, Rs 5 per unit, the trust itself breaks that Rs 5 into components and tells you the breakdown in the distribution intimation it publishes each quarter (it also flows into your annual tax statement). You do not work it out from first principles; you read it. But you must understand each slice, because each carries its own rate, its own TDS, and in one case its own time bomb in your cost basis.

The interest slice is interest the trust earned on loans to its SPVs, passed through to you. For a non-resident unit holder this is taxed at a concessional 5% under Section 115A, with TDS deducted at source at 5% under Section 194LBA, plus surcharge and health-and-education cess that lift the effective deduction slightly. Here is the NRI-specific point most blogs miss: from FY 2025-26 the government introduced a Rs 10,000 threshold below which 194LBA TDS is skipped, but that threshold applies to resident unit holders only. For a non-resident there is no threshold, so TDS bites from the first rupee of interest. The 5% rate is genuinely favourable, and once cess is added it is close to a final tax on this slice for most NRIs.

The dividend slice is dividend the SPVs declared up to the trust and passed to you, and its taxability turns on one technical fact about each SPV: whether that SPV has opted into the concessional 22% corporate regime under Section 115BAA. If the SPV has not opted in, the dividend is exempt in your hands, no tax and no TDS on this component. If it has opted in, the dividend is taxable, and for a non-resident it is taxed at 10% with 10% TDS under Section 194LBA, again plus surcharge and cess. You never have to guess: the trust discloses, distribution by distribution, whether the dividend portion is taxable, because it depends on each SPV's election and the mix can change quarter to quarter.

The return-of-capital slice, formally the repayment of the trust's loan principal, is the one that confuses people most, partly because the rules changed and partly because it carries a delayed tax. Historically this slice was simply untaxed, which let trusts route large amounts of cash to investors tax-free as "debt repayment." The Finance Act 2023 closed most of that loophole from FY 2023-24 by inserting Section 56(2)(xii) and amending Section 48. After the industry pushback that softened the original proposal, the current treatment works like this: the return-of-capital is not taxed when you receive it; instead, it reduces your cost of acquisition of the units under Section 48. You pay nothing on this stream until the cumulative return-of-capital you have received exceeds your original purchase price, and only that excess, the "specified sum," is then taxed under Section 56(2)(xii) as income from other sources. The statute even gives a formula: taxable amount equals aggregate non-interest, non-dividend, non-rent distributions (A) minus your cost of acquisition (B) minus amounts already taxed in earlier years (C), floored at zero. For most NRIs in the first several years of a holding, this slice is effectively tax-deferred, but it is not free: it is grinding your cost basis down, which enlarges your eventual capital gain.

Put the three together and you can see why a REIT distribution cannot drop into a single tax line. The same Rs 5 might be Rs 2 of interest taxed at 5%, Rs 1.50 of dividend that is exempt or taxed at 10% depending on the SPV, and Rs 1.50 of return-of-capital that is untaxed now but basis-reducing. The headline yield and the after-tax yield diverge, and they diverge by an amount specific to each trust's component mix. Two REITs quoting the same 6% yield can deliver materially different money after tax.

The cleanest way to feel this is on a real holding. Consider Riya, an NRI in the UAE, who buys 2,000 units of a listed REIT at Rs 350, funded entirely from her NRE account so the holding is fully repatriable, for a total cost of Rs 7,00,000. Over the year the REIT pays Rs 24 per unit, Rs 48,000 in all, and discloses the split as Rs 12 interest, Rs 7 dividend (from an SPV that has opted into 115BAA, so taxable), and Rs 5 return-of-capital. Her interest is Rs 12 x 2,000 = Rs 24,000, taxed at 5% under Section 115A with 194LBA TDS of Rs 1,200 before cess, roughly Rs 1,250 after. Her dividend is Rs 7 x 2,000 = Rs 14,000, taxable at 10% because the SPV opted in, so Rs 1,400 TDS, about Rs 1,456 after cess. Her return-of-capital is Rs 5 x 2,000 = Rs 10,000, untaxed now, but it drops her cost basis from Rs 7,00,000 to Rs 6,90,000, or Rs 345 per unit, which she must record for the day she sells. Her total Indian tax for the year is about Rs 2,700 on a Rs 48,000 distribution, an effective rate near 5.6%, even though Rs 38,000 of it was genuinely taxable income. That blended low rate is the whole appeal. Riya then reports the income on her UAE side, where with no personal income tax there is no further tax. The counterfactual is worth holding next to it: had that same Rs 14,000 dividend come from an SPV that had not opted into 115BAA, it would have been fully exempt, her dividend TDS would have been zero, and her total tax would have fallen to roughly Rs 1,250, an effective rate near 2.6%. The SPV's tax election, which you do not control, swings your bill by more than double.

After-tax yield, and what an NRI in the West actually keeps

The number every income investor really wants is the after-tax yield and the repatriated amount, and that is where the home country re-enters the maths.

Take Arjun, an NRI in the USA, who invests Rs 20,00,000 in a listed InvIT, 40,000 units at Rs 50, funded from NRE, fully repatriable. The InvIT pays Rs 4 per unit, Rs 1,60,000 in all, an 8% pre-tax yield, and discloses the split as Rs 3.20 interest (80% of the cheque, typical for an InvIT), Rs 0.40 dividend from SPVs that have not opted into 115BAA so it is exempt, and Rs 0.40 return-of-capital. His interest is Rs 3.20 x 40,000 = Rs 1,28,000, taxed at 5%, TDS Rs 6,400 before cess, about Rs 6,656 after. His dividend is Rs 16,000 but exempt in India, no tax, no TDS. His return-of-capital is Rs 16,000, untaxed now, dropping his basis to Rs 19,84,000. Arjun's total Indian tax is roughly Rs 6,656 on Rs 1,60,000, an effective rate near 4.2%, and his after-tax distribution yield is about (Rs 1,60,000 minus Rs 6,656) / Rs 20,00,000 = 7.67%.

Set that against an NRE fixed deposit at, say, 7% completely tax-free in India, and the InvIT's after-tax 7.67% looks competitive, with the crucial caveat that the FD return is contractual and capital-protected while the InvIT's distribution can be cut and the unit price can fall. The yield premium is the price of that risk, not a free lunch.

But Arjun is not done, and this is where Western NRIs differ sharply from Gulf ones. Because the United States taxes worldwide income, the entire Rs 1,60,000 is reportable on his US return, including the Rs 16,000 dividend that India exempted. The Indian 0% does not carry across; the US taxes that slice regardless, and his foreign tax credit only offsets the Indian tax he actually paid, which on the exempt dividend is nothing. So Arjun's true global after-tax yield is lower than 7.67%, because his US bracket reaches the parts India left alone. An NRI in the UK or Canada faces the same worldwide-income logic, with relief for the Indian TDS under the relevant DTAA via Form 67. Only the UAE resident, with no personal income tax, keeps the clean Indian-only outcome that Riya enjoyed. The honest comparison is therefore not REIT-versus-FD in the abstract; it is REIT-versus-FD for your specific passport.

On repatriation, because Arjun funded from NRE, the full Rs 1,53,344 net distribution moves to the US freely with no cap, and when he sells, the proceeds and any gain net of TDS are likewise fully repatriable. Had he funded from NRO instead, the same income would be non-repatriable except through the USD 1 million per financial year route, with Form 15CA and a chartered accountant's Form 15CB. For most NRIs who can choose, NRE funding is the obvious call precisely to avoid that annual ceiling and the certification overhead. The mechanics are in repatriating investment proceeds out of India.

Capital gains: the 12-month fix, and the basis sting on the back end

Distributions are the income story; the sale is the capital story, and here the rules moved twice in NRIs' favour and then needed a fix.

Until July 2024, units of business trusts carried a punishing 36-month holding period to count as long-term, far longer than listed equity's 12. The Budget of July 23, 2024 brought listed REIT and InvIT units to parity with listed equity at 12 months. Held more than 12 months, the gain is long-term, taxed at 12.5% without indexation under Section 112A, with the first Rs 1.25 lakh of your combined Section 112A gains in the year exempt, an allowance shared across your listed equity, equity-fund and business-trust gains rather than a separate bucket. Held 12 months or less, the gain is short-term at 20% under Section 111A.

There was a drafting gap that mattered for the current filing year. Section 115UA(2), which governs how a business trust's own income is charged, originally referenced only Sections 111A and 112 and omitted 112A. The Finance Act 2025 amended Section 115UA(2) with effect from April 1, 2026 (AY 2026-27) to expressly include Section 112A, confirming that long-term gains on business-trust units sit at the concessional 12.5% with the Rs 1.25 lakh exemption rather than the maximum marginal rate. So as you file for AY 2026-27, the 12.5% treatment is on clean statutory ground; for transactions in the gap period, the position was defensible but had to be argued, which is exactly the kind of thing you do not want to be doing on a large gain.

Now the sting the distributions section set up. When you compute the gain, your cost of acquisition is not what you paid; it is what you paid reduced by the cumulative return-of-capital you received under Section 48. That deferral on the front end resurfaces as a larger taxable gain on the back end. Riya, who bought at Rs 350 and saw her basis fall to Rs 345 after one year of return-of-capital, would compute her gain off Rs 345, not Rs 350, and a long-term holder who collects return-of-capital for a decade can see basis grind toward zero, at which point further return-of-capital flips from deferred to taxable under Section 56(2)(xii). The single discipline that ties the whole instrument together is tracking that cumulative return-of-capital figure; lose it and you cannot compute either your Section 56 trigger or your capital gain correctly.

On sale, TDS applies to an NRI seller and the broker mechanism deducts it tracking the gain's character. The default deduction frequently overshoots your real liability, especially once DTAA relief is factored in, and you recover the excess only by filing an Indian return. On a large exit it is worth applying for a lower or nil TDS certificate under Section 197 (Form 13) before you sell, so the buyer or broker deducts the right amount rather than parking your cash with the government for a year; the mechanics are in the lower-TDS certificate guide. The gain is reportable in your country of residence with DTAA relief for the Indian tax paid, and it interacts with the rest of your equity gains under the Rs 1.25 lakh shared exemption explained in the capital gains guide.

How distributions and gains are taxed, slice by slice

Slice of the cheque	NRI rate	TDS	The thing to watch
Interest (Section 115A)	5%	5% under 194LBA	No threshold for non-residents; bites from rupee one
Dividend, SPV not in 115BAA	0% (exempt)	Nil	Status can change between quarters
Dividend, SPV in 115BAA	10%	10% under 194LBA	Read each distribution intimation, do not assume
Return of capital	Deferred	Nil	Cuts your cost basis; taxed under 56(2)(xii) once cumulative receipts exceed purchase price
Long-term gain on sale (held over 12 months)	12.5% above Rs 1.25 lakh	Yes, on the gain	Section 112A; basis reduced by past return-of-capital
Short-term gain on sale (12 months or less)	20%	Yes, on the gain	Section 111A

Liquidity, and the discipline it quietly removes

The liquidity gap between a REIT unit and a flat is not a footnote; for an NRI it is often the whole argument, and it cuts in a direction people forget.

Selling a flat from abroad is a project. You find a buyer, agree a price, the buyer deducts TDS under Section 195 (usually on the bulk of the sale value unless you hold a lower-deduction certificate), you register the sale, compute the gain, arrange Form 15CA and 15CB, and repatriate, all from another country, often through a power-of-attorney holder. Realistically that is a three-to-twelve-month exercise, and the single-asset nature means you sell all of it or none. A REIT unit sells on the exchange on any trading day, in any size, with proceeds in the standard settlement cycle. For an NRI who may need to move money across borders on short notice, that difference is frequently decisive.

The honest counterweight is that liquidity is a temptation as much as a tool. The same ease that lets you exit cleanly is how some investors turn a temporary price dip into a permanent loss by selling in a panic. A flat's illiquidity is, perversely, a behavioural brake that stops you crystallising the bottom. And the smaller InvITs trade with low volume and wide spreads, so the on-paper liquidity edge over property shrinks if you cannot exit a large position without moving the price. Size those positions on the assumption that liquidity is decent but not infinite, and be honest about which kind of investor you are before you treat tradability as a pure positive.

Edge cases

You bought with NRO money and now want full repatriation. Units bought from NRO funds are non-repatriable beyond the USD 1 million per financial year route. You cannot retroactively convert them to repatriable status. Decide the funding source before you buy if repatriation matters, because for most NRIs it does.

The dividend slice flips between distributions. Because dividend taxability depends on each SPV's 115BAA election, the same REIT can pay a tax-free dividend one quarter and a taxable one the next as its SPV mix or elections change. Do not carry forward last year's split; read each distribution intimation.

Your return-of-capital has cut basis to near zero. A long-term holder who keeps receiving return-of-capital eventually drives cost of acquisition toward zero. Once cumulative return-of-capital exceeds your purchase price, the excess is taxable under Section 56(2)(xii) as income from other sources, no longer deferred. Track the cumulative figure; the trust will not flag the crossover for you.

You are a US, UK or Canada person. Worldwide-income taxation means every component, including the dividend slice India exempts, is reportable at home, with a foreign tax credit only for Indian tax actually paid. The UAE, with no personal income tax, is the clean case where Indian TDS is effectively your only tax. This is the single biggest reason the same REIT is a better deal for a Gulf NRI than a Western one.

TDS overshoots your liability. The default TDS, especially on a sale, can exceed your real tax once DTAA relief is considered. Recover the excess by filing, or pre-empt it with a Section 197 certificate on a large transaction. Either way, keep your TDS certificates and distribution breakdowns; they are what reconcile the return.

The closing read

The honest read is that for an NRI who wants Indian real-estate and infrastructure exposure as a source of income rather than as a home, listed REITs and InvITs are the most sensible vehicle on the menu, and the tax, once you stop fearing it, is favourable. The 5% on interest, the 0% or 10% on dividend, and the deferral on return-of-capital combined into a blended distribution tax of roughly 4% to 5.6% in both worked examples above, well under any slab rate. Add the 12.5% long-term rate at a clean 12-month holding period, now properly anchored in Section 112A from AY 2026-27, and the after-tax arithmetic stands up against an NRE FD while giving you an asset class the FD cannot.

So commit to the decision rather than a menu. For most NRIs who want income and liquidity, buy the larger, more liquid trusts (Embassy, Mindspace, Brookfield, Nexus Select on the REIT side; India Grid, Powergrid InvIT on infrastructure) and fund from NRE so repatriation is frictionless. Reach for a thin InvIT only if you have a specific reason and can size around its spread. The one group for whom the calculus is genuinely weaker is US, UK and Canada residents in high brackets, because worldwide-income tax claws back the exempt-dividend and low-interest advantages that make the Gulf case so clean; for them a REIT is fine but not the standout it is for a UAE NRI, and the comparison should be run on their home bracket, not India's headline rates.

What you must not do, in any country, is treat the distribution as one number. It is three streams wearing one cheque. The entire job is reading the trust's component breakdown each quarter, tracking the return-of-capital that quietly erodes your basis, and reconciling it all to your TDS certificates at filing time. Do that, and you own a slice of India's best office parks and power lines without ever holding a key, a tenant, or a registrar's appointment. That is the trade most NRIs should want, and it needs only a demat account and a PAN.

Related guides

• Buying property in India as an NRI
• Setting up an NRI demat account
• Building an India corpus as an NRI
• NRI government bonds via RBI Retail Direct
• Repatriating investment proceeds out of India
• Capital gains tax for NRIs on shares and mutual funds
• How NRI dividends are taxed in India
• TDS for NRIs and how to claim refunds
• The lower-TDS certificate (Form 13, Section 197)
• Foreign tax credit and Form 67
• ITR filing for NRIs, AY 2026-27
• NRE, NRO and FCNR accounts explained
• All investments guides
• All taxation guides

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This guide is general information for Indian expats, not personal financial, tax, or legal advice. The component-wise taxation of REIT and InvIT distributions, the Section 115BAA dependency of the dividend slice, the return-of-capital basis rules under Sections 48 and 56(2)(xii), the 12.5% Section 112A long-term rate confirmed for listed business trusts from assessment year 2026-27, the 194LBA TDS treatment for non-residents, and NRI repatriation limits are current as of June 2026 but change with each Budget. Rates, holding periods, TDS provisions and the list of listed REITs and InvITs are subject to revision. Verify your position with a qualified chartered accountant and your depository participant before acting, account for your home-country tax under the relevant DTAA, and read each trust's own distribution intimation for the exact component split.