Distribution (REIT/InvIT)

The cheque that lands in your demat account

Buy a unit of Embassy REIT or an InvIT like IndiGrid and you don't get a "dividend" in the ordinary sense. You get a distribution, and understanding its mix is the difference between a smart income investor and a confused one.

A REIT owns rent-yielding office parks and malls; an InvIT owns cash-generating infrastructure like power lines, roads or pipelines. By SEBI rules they must pass through the bulk of their net distributable cash flow, at least 90%, to unitholders, typically twice a year or quarterly. That payout is the headline reason people buy these instruments.

Why the components matter for your tax

Here is the part most retail investors miss. A single distribution can arrive in several flavours, and your tax outcome depends on which.

- Interest and dividend components are generally taxable in your hands. - The return-of-capital (debt repayment) portion is not taxed immediately. It reduces your cost of acquisition, and only becomes taxable once cumulative repayments exceed your original purchase price.

Every listed REIT and InvIT issues an annual tax certificate breaking down exactly how much of each year's distribution fell into each bucket. Keep it; it is what your CA needs.

There are now five listed REITs in India, including Embassy, Mindspace, Brookfield, Nexus Select and Knowledge Realty, plus a clutch of InvITs. Aggregate REIT distributions have been growing year on year, a sign the asset class is maturing rather than just surviving.

The takeaway

A distribution yield is genuinely attractive in a country where good rental property is illiquid and lumpy. But judge a REIT by the quality and growth of its distribution, occupancy, rent escalations, debt levels, not just the trailing yield number. SEBI's move to reclassify REITs as equity instruments from January 2026 also nudges them toward index inclusion and a broader investor base. Treat the distribution as income, read the tax certificate, and don't assume the whole payout is taxable, or that the whole payout is tax-free.