A REIT or InvIT unitholder gets one number on the payout advice - the total distribution for the quarter. The tax treatment behind that number isn’t one thing. Under Section 115UA’s pass-through structure, the trust splits every distribution into interest, dividend, and repayment of capital, and reports the split to each unitholder on Form 64B. Each component is taxed differently.
- Interest - taxed at the unitholder’s slab rate, since it has already been exempted at the trust level.
- Dividend - exempt in the unitholder’s hands, unless the underlying special purpose vehicle paying it opted into the concessional corporate tax regime under Section 115BAA, in which case it becomes taxable. Whether it’s taxable depends on a choice made inside a company the unitholder has never looked at.
- Repayment of capital - not income at all. It reduces the unitholder’s cost basis in the units, deferring tax rather than triggering it, until the units are eventually sold.
The 90% Rule Fixes the Amount, Not the Composition
SEBI mandated, effective 1 April 2024, that REITs and InvITs distribute at least 90% of net distributable cash flow - fixing how much has to be paid out, not what it’s made of. The composition of that 90% still varies quarter to quarter and trust to trust, driven by each SPV’s own debt levels, depreciation schedule, and tax election.
Identical Headline Yields, Different After-Tax Income
The practical effect: two REITs paying an identical headline distribution yield can leave their unitholders with meaningfully different after-tax income, purely because one leaned more heavily on the interest component and the other on capital repayment. Comparing REITs on distribution yield alone skips exactly the detail Form 64B exists to disclose.
Read Form 64B before comparing REITs on distribution yield. The split between interest, dividend and capital repayment is what determines after-tax income, and it varies by trust and by quarter - the headline yield conceals exactly the detail the form exists to disclose.
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