REIT vs InvIT: How the Two Trusts Earn, Pay Out and Get Taxed
A REIT owns rent-paying buildings, mostly offices and malls; an InvIT owns infrastructure such as roads, power lines and telecom towers. Both must pay out at least 90% of distributable cash, but InvITs usually yield more (about 6% to 11% in 2026, against roughly 5.5% to 7.5% for most REITs) because part of every payout returns your capital as the concessions run down.
Key takeaways
- REITs must keep at least 80% of assets in completed, income-generating property and cap borrowing at 49%. InvITs can borrow up to 70% with a AAA rating and unitholder approval.
- Road, transmission and telecom assets have finite lives, so an InvIT's high yield partly returns your own money.
- Each payout splits into interest, dividend, rent (REITs only) and repayment of debt, and each part is taxed differently.
- Repayment of debt is tax-free only until your cumulative receipts pass the issue price, under the rule introduced in 2023.
- Public REIT and InvIT units trade in lots of one. Privately placed InvITs need at least Rs 25 lakh.
Two trusts, two kinds of asset
Both are business trusts regulated by SEBI and taxed under a common pass-through regime. The difference is what sits underneath. Our REIT investment guide covers how a REIT works; this page is about the comparison.
| Feature | REIT | InvIT |
|---|---|---|
| Assets | Office parks, malls, some hotels | Roads, power transmission, telecom towers and fibre, gas pipelines, renewables |
| Asset life | Buildings keep their land; income can run indefinitely | Concessions and licences end; value runs down to zero or near it |
| Borrowing cap | 49% of asset value | Up to 70%, with AAA rating, six continuous distributions and 75% unitholder approval |
| Payout rule | At least 90% of net distributable cash flow | At least 90% of net distributable cash flow |
| Main payout component | Often repayment of SPV debt, then dividend | Often interest, then capital repayment |
| Mutual fund treatment | Equity-related from 1 January 2026 | Not part of that change |
What InvITs own, and how the cash arrives
An InvIT's cash flow depends on the contract behind each asset, which is why two InvITs with similar yields can carry very different risks.
- Toll roads earn what traffic pays, so income moves with the economy, fuel prices and new competing routes.
- Annuity and hybrid annuity (HAM) roads receive fixed payments from an authority such as NHAI, twice a year, regardless of traffic. The risk is the authority's willingness and ability to pay.
- Power transmission earns regulated tariffs for keeping lines available, largely independent of how much power flows. PowerGrid InvIT and IndiGrid are the listed examples.
- Telecom towers and fibre earn lease rent from operators, so concentration on one or two telecom companies is the risk.
Every one of these has a finite concession or licence. That is the structural difference from a REIT: when a toll road's concession ends, the asset goes back to the authority. Part of each distribution therefore has to be read as your capital coming back, not as income you can spend and still hold the same asset value.
Public, private listed and private unlisted InvITs
Public InvITs are listed, open to everyone and trade in lots of one unit. Privately placed InvITs, listed or unlisted, sell to institutions and larger investors: SEBI has set a uniform minimum allotment of Rs 25 lakh for privately placed InvITs, matching their trading lot. Unlisted private InvITs have historically required Rs 1 crore or more. For a retail investor, public InvITs are the realistic choice.
Yields side by side
Yields change with unit prices daily, and the sources we checked disagree on REITs. One 2026 comparison gave Embassy about 5.5%, Mindspace 5.8%, Nexus Select 6% and Brookfield India 7.5%; another put Brookfield and Nexus at 7.5% to 9% and Embassy and Mindspace at 7% to 8%.
| Trust | Type | Assets | Distribution yield quoted in 2026 |
|---|---|---|---|
| PowerGrid InvIT | InvIT | Power transmission | About 6% to 7% |
| IRB InvIT | InvIT | Toll roads | About 10% to 11% |
| Embassy Office Parks | REIT | Offices | About 5.5% (one source) to 7% to 8% (another) |
| Mindspace Business Parks | REIT | Offices | About 5.8% to 8% |
| Brookfield India | REIT | Offices | About 7.5% to 9% |
| Nexus Select | REIT | Malls | About 6% to 9% |
A REIT's lower yield comes with rent escalations and a building that keeps its land value. An InvIT's higher yield comes with an asset that is wearing out on a timetable. Compare REIT yields with the 7.5% to 8.4% at which prime Grade A offices trade directly (see our note on Grade A versus Grade B offices), and with the 6% to 9% on a pre-leased unit you would own and manage yourself.
How each payout component is taxed
Under section 223 of the Income-tax Act, 2025 (the old section 115UA), read with Schedule V, each part of a distribution keeps the character it had in the trust's hands.
| Component | REIT | InvIT | Tax in your hands |
|---|---|---|---|
| Interest from SPVs | Yes | Yes, usually the largest part | Slab rate |
| Dividend from SPVs | Yes | Yes | Exempt if the SPV stays on the old corporate tax regime; taxable at slab if it opted for the concessional regime (see below) |
| Rent | Yes, where the REIT holds assets directly | No | Slab rate |
| Repayment of debt or capital | Yes, often the largest part | Yes | Tax-free until cumulative receipts exceed the issue price; the excess is taxed as other income |
| Sale of listed units | Yes | Yes | 20% if held 12 months or less; 12.5% above Rs 1.25 lakh a year if held longer (exemption applies from FY 2026-27) |
The 2023 change on capital repayments
Before 2023, debt repaid by SPVs and passed through to unitholders was a capital receipt and went untaxed. The Finance Act, 2023 introduced section 56(2)(xii) of the old Act to tax it, then softened the rule before it passed. You add up all non-interest, non-dividend, non-rent distributions received to date and subtract the issue price (the IPO price for public investors). Only the excess is taxed. With an issue price of Rs 100 and Rs 30 received, nothing is taxed yet; once the total reaches Rs 120, Rs 20 is taxed in the year it crosses.
The 2026 change on dividends
The Taxation and Other Laws (Amendment) Bill, 2026 restores the dividend exemption even where an SPV has opted for the concessional corporate tax regime, while adding a 15-percentage-point surcharge at the SPV level to recover the revenue. Parliament passed it in August 2026 and it has since received Presidential assent. Interest, rent and capital gains remain taxable, so the change is narrower than headlines suggest; check the year it applies from with your adviser.
A worked example: Rs 50,000 of payouts from each
Take Q1 FY27 distributions as the split. Embassy REIT paid Rs 6.31 a unit: Rs 0.37 interest, Rs 0.80 dividend and Rs 5.14 repayment of SPV debt. IndiGrid paid Rs 4.12: Rs 2.6909 interest, Rs 0.0224 taxable dividend and Rs 1.4067 capital repayment. Scale each to Rs 50,000 a year and apply a 30% slab, ignoring surcharge and cess, and assume Embassy's dividend is exempt and neither holding has crossed its issue price.
| Component | REIT (Embassy split) | InvIT (IndiGrid split) |
|---|---|---|
| Interest, taxed at 30% | Rs 2,932 | Rs 32,657 |
| Dividend | Rs 6,339, exempt | Rs 272, taxed at 30% |
| Repayment of debt or capital | Rs 40,729, not yet taxed | Rs 17,072, not yet taxed |
| Tax | About Rs 880 | About Rs 9,879 |
| Kept after tax | About Rs 49,120 | About Rs 40,121 |
So a pre-tax InvIT yield needs to beat a REIT yield by roughly a fifth just to draw level for a top-slab investor, before counting that the InvIT's capital is running down. For someone in a low slab or with no other income, the gap narrows sharply.
Which suits whom
- REITs suit investors who want property exposure with growth: rents escalate, occupancy can rise, and the buildings keep value. The price is a lower starting yield and exposure to office demand.
- InvITs suit investors in lower tax slabs who want higher, bond-like cash flows and understand that part of every payout is capital. Transmission and annuity assets are steadier than toll roads.
- Neither is a fixed deposit. Unit prices fall when interest rates rise, and a large InvIT yield can hide a short remaining concession or high borrowing.
- Smaller tickets into specific buildings are possible through SM REITs, with a Rs 10 lakh minimum.
For how these compare with owning a flat or a shop outright, see our commercial versus residential guide.
Frequently asked questions
Which gives a higher yield, a REIT or an InvIT?
InvITs, usually. Quoted 2026 yields ran from about 6% to 7% for PowerGrid InvIT to 10% to 11% for IRB InvIT, against roughly 5.5% to 7.5% for most listed REITs, with some sources putting Brookfield and Nexus higher. But part of an InvIT payout returns capital from assets with finite lives, so the headline yields are not directly comparable.
Is the repayment of debt part of a REIT payout tax-free?
Only up to a point. Since the Finance Act, 2023, you total all repayment-type distributions received and subtract the unit's issue price. Nothing is taxed until that total exceeds the issue price; after that, the excess is taxed as income from other sources at your slab rate. For a young REIT or InvIT, most investors will not cross that line for years.
Are REIT and InvIT dividends tax-free in 2026?
They are exempt where the SPV paying them stays on the old corporate tax regime. Where it opted for the concessional regime, dividends became taxable, and the Taxation and Other Laws (Amendment) Act, 2026 restores the exemption while charging SPVs an extra surcharge. Interest and rent in the same payout stay taxable at your slab rate.
How is capital gains on selling REIT or InvIT units taxed?
Listed units held 12 months or less are taxed at 20% as short-term gains. Held longer, gains are taxed at 12.5%, and from FY 2026-27 the Rs 1.25 lakh annual exemption applies to them as it does to listed shares. The holding period and rates are the same for REIT and InvIT units.
Can I invest in a private InvIT?
Only with a large ticket. SEBI has set a minimum allotment of Rs 25 lakh for privately placed InvITs, matching their trading lot, and unlisted private InvITs have historically needed Rs 1 crore or more. Public InvITs, by contrast, trade on the stock exchange in lots of one unit, so most individual investors use those.
If you are weighing trust units against owning a leased property directly, the Realty Hunting team can set the numbers side by side with you. Our commercial listings show what direct ownership costs today.
