NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Other Products

Taxation of Real Estate and REITs/InvITs for NISM X-B

Updated 11 October 2026 · Fact-checked

Gain on land or building is long-term if held more than 24 months and taxed at 12.5% (resident individuals and HUFs who bought before 23 July 2024 may choose 20% with indexation). Short-term gain is taxed at slab rates. REIT/InvIT payouts are taxed by component: interest, dividend, rent or return of capital. Unit sales follow listed-security rules.

Understand Taxation of Real Estate and REITs/InvITs

Real estate here means land and buildings. When you sell them, the profit is a capital gain. The first question is the holding period. Land or building held for more than 24 months is a long-term capital asset. Held for 24 months or less, the gain is short-term and is added to your income and taxed at your slab rate.

For long-term gains on property, the current rule is a flat 12.5% without indexation. There is a transitional option. A resident individual or HUF who acquired the property before 23 July 2024 may pay tax under either 12.5% without indexation or 20% with indexation, whichever gives the lower tax. Indexation raises the cost using the Cost Inflation Index. Others get no option. Surcharge and cess are added on top.

Exemptions reduce long-term gain. Section 54 applies when a resident individual or HUF sells a residential house and reinvests the gain in another residential house in India. Section 54F applies when the sold asset is any long-term capital asset other than a residential house. For full exemption you must invest the whole net sale consideration in a new residential house. If you invest less, the exemption is proportionate. You must not own more than one residential house (other than the new one) on the date of transfer. The cost of the new house considered is capped at ₹10 crore. Section 54EC applies only to long-term land or building. You invest the capital gain in specified bonds within 6 months, up to ₹50 lakh in total, counting the financial year of transfer and the next financial year together. The bonds have a 5-year lock-in.

A REIT (Real Estate Investment Trust) holds income-producing property. An InvIT (Infrastructure Investment Trust) holds infrastructure assets such as roads and power lines. Both are business trusts with a pass-through status. Income passes to the unitholder and keeps its character, but the components differ. Interest is taxed as interest in your hands. Rental income is mainly a REIT component: rent received directly by the trust from property it holds directly is taxed in your hands. InvITs mainly distribute interest, dividend and repayment of debt.

Dividend from an SPV that has not opted for the concessional tax regime (Section 115BAA) is exempt for the unitholder. If the SPV has opted for it, the dividend is taxable in the unitholder's hands at the applicable rates. Repayment of SPV debt or return of capital is not taxed on receipt. It reduces your cost of units, so the gain on a later sale is higher.

When you sell listed REIT or InvIT units on an exchange with STT paid, the gain is taxed like listed equity. Units held more than 12 months give long-term gain. Units held 12 months or less give short-term gain.

Key formulas to remember

Holding period for property: Land or building: long-term if held > 24 months; 24 months or less is short-term. Short-term gain is taxed at slab rates.
LTCG on property: 12.5% × (Sale price − Cost of acquisition − Improvement − Transfer expenses); No indexation. Resident individual/HUF who acquired before 23 July 2024 may instead choose 20% with indexed cost. Surcharge and cess extra.
Indexed cost: Indexed cost = Cost × CII of year of transfer ÷ CII of year of acquisition; Used only under the 20% option.
Section 54 exemption: Exemption = lower of (LTCG, amount invested in new residential house); Buy 1 year before or 2 years after transfer, or construct within 3 years. Unused gain goes to the Capital Gains Account Scheme before the return due date. Cost of the new house considered is capped at ₹10 crore.
Section 54F exemption: Exemption = LTCG × (Net consideration invested ÷ Net consideration); Sold asset: any long-term asset other than a residential house. Full exemption if all net consideration is invested. Cost of the new house considered is capped at ₹10 crore. Not available if you own more than one residential house (other than the new one) on the transfer date.
Section 54EC: Invest gain in specified bonds within 6 months; limit ₹50 lakh in total across the financial year of transfer and the next financial year; Only for long-term land or building. Lock-in 5 years.
REIT/InvIT listed unit sale: LTCG (held > 12 months): 12.5% on gains above ₹1.25 lakh in the year. STCG: 20%; STT-paid sale on exchange. The ₹1.25 lakh limit covers all such LTCG in the year, not per scrip.
Return of capital: New cost of units = Old cost − Amortisation/debt repayment received; Not taxed when received. It lowers cost, so the gain is higher on later sale.

How to solve Taxation of Real Estate and REITs/InvITs questions

Use this order for any question on property or REIT/InvIT tax. It stops you from mixing up asset type, holding period and rate.

1Identify the asset: land or building, residential house, or REIT/InvIT unit.
2Check the holding period from purchase date to transfer date. Property: 24 months. Listed units: 12 months.
3Compute the gain: sale price minus transfer expenses, minus cost and improvement. Use indexed cost only if the 20% option applies and is asked for.
4Apply the rate: slab for short-term property, 12.5% for long-term property, 20% for STCG on listed units, 12.5% above ₹1.25 lakh for LTCG on listed units.
5Check exemption eligibility: Section 54 for house to house, 54F for other asset to house, 54EC for bonds. Verify the taxpayer is an individual/HUF and the time limits.
6For distributions, split the payout into interest, dividend, rent and return of capital. Tax only the income parts, and reduce cost for return of capital.
7Add surcharge and cess only if the question asks for total tax.

Quickest way: Three-check shortcut

When to use it: Use it for one-line MCQs on holding period, rate or exemption conditions.

Say the asset and cut-off first: property 24 months, listed units 12 months.
Match rate: property LTCG 12.5%, listed unit STCG 20%, LTCG 12.5% above ₹1.25 lakh.
For exemptions, ask: what was sold, what is bought, and who is the seller? House to house is 54. Other asset to house is 54F. Land or building to bonds is 54EC.
For REIT/InvIT payouts, ask what the payout is made of. Return of capital is not taxed on receipt, but it lowers cost and so raises the gain on sale.

Common mistakes in Taxation of Real Estate and REITs/InvITs

Using 12 months as the long-term cut-off for property.
12 months applies to listed shares and units, so students carry it over.
Fix: Remember: land or building is 24 months. Listed REIT/InvIT units are 12 months.
Applying indexation to every property sale.
Older notes taught indexation for all long-term property.
Fix: Indexation is only an option for resident individuals/HUFs who acquired before 23 July 2024. The default is 12.5% without indexation.
Claiming Section 54 for sale of a plot or a commercial building.
Students remember 'reinvest in house' and ignore the asset sold.
Fix: Section 54 needs a residential house sold. For other long-term assets, think 54F. For land or building, 54EC is also possible.
Treating all REIT/InvIT distributions as tax-free or all as taxable.
Students ignore that the payout has different components.
Fix: Split it. Interest, rent and dividend follow their own tax rules. Return of capital is not taxed on receipt but lowers cost, so the gain on sale is higher.
Applying the ₹1.25 lakh exemption to each security separately.
Students read it as a per-holding concession.
Fix: It is a single limit on total LTCG of that type in the financial year.
Forgetting the 54EC limit and lock-in.
Students remember only the 6-month window.
Fix: Learn all three: 6 months, ₹50 lakh in total across the financial year of transfer and the next one, and a 5-year lock-in.

Worked examples

Example 1

Ms Rao, a resident individual, sold a flat in which she lived for ₹90,00,000 in a financial year. She bought it 5 years ago for ₹50,00,000. Transfer expenses were nil. Within 8 months she bought another residential house in India for ₹30,00,000. Compute her taxable capital gain and tax, ignoring surcharge and cess. Assume she takes the 12.5% option without indexation.

Show the solution

Holding period is 5 years, more than 24 months, so the gain is long-term.
LTCG = 90,00,000 − 50,00,000 = ₹40,00,000.
The asset sold is a residential house and she reinvested in one within 2 years, so Section 54 applies.
Exemption = lower of gain (₹40,00,000) and investment (₹30,00,000) = ₹30,00,000.
Taxable LTCG = 40,00,000 − 30,00,000 = ₹10,00,000.
Tax = 12.5% × 10,00,000 = ₹1,25,000.

Answer: Taxable LTCG is ₹10,00,000 and tax is ₹1,25,000 before surcharge and cess.

Example 2

Mr Shah bought listed REIT units on the exchange 18 months ago. He sold them on the exchange with STT paid and made a gain of ₹3,25,000. He has no other long-term gains on listed equity or units this year. Find the tax before cess.

Show the solution

Units were held 18 months, more than 12 months, so the gain is long-term.
STT was paid on a recognised exchange sale, so the listed-securities LTCG rule applies.
The first ₹1,25,000 of LTCG in the year is exempt.
Taxable LTCG = 3,25,000 − 1,25,000 = ₹2,00,000.
Tax = 12.5% × 2,00,000 = ₹25,000.

Answer: Tax on the sale is ₹25,000 before surcharge and cess.

Exam tips

Memorise the two cut-offs side by side: 24 months for land or building, 12 months for listed REIT/InvIT units. Examiners build trap options around them.
In exemption questions, read who sold what. The asset sold decides between Sections 54, 54F and 54EC.
For REIT/InvIT questions, look for the nature of the payout. 'Repayment of debt' or 'return of capital' signals no tax on receipt and a lower cost.
Negative marking is a percentage of the question's marks. On 2-mark case questions, skip a rate or limit you cannot recall rather than guess.
Do not mix REIT and InvIT on income types. Rental income is mainly a REIT component, while InvITs mainly pay interest, dividend and repayment of debt.

Practice questions from Taxation of Other Products

Taxation of Real Estate and REITs/InvITs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Taxation of Real Estate and REITs/InvITs: frequently asked questions

What is the tax on long-term capital gain from selling a house?

Land or building held more than 24 months gives a long-term gain taxed at 12.5% without indexation. Resident individuals and HUFs who acquired before 23 July 2024 may choose 20% with indexation instead. Surcharge and cess apply on top.

How do I get exemption under Section 54 on sale of a house?

You must be an individual or HUF selling a long-term residential house. Buy another residential house in India one year before or two years after the sale, or construct one within three years. Exemption is the lower of the gain and the amount invested.

What is the difference between REIT and InvIT taxation?

Both are business trusts with pass-through treatment, and each payout keeps its character in your hands. The difference is the asset and the usual payout mix. REITs hold income-producing real estate and can pay rental income. InvITs hold infrastructure projects and mainly pay interest, dividend and repayment of debt.

Is the distribution from a REIT or InvIT taxable?

It depends on its components. Interest, rent and dividend portions are taxed in the unitholder's hands as per their nature. A repayment of capital or debt is not taxed at that time, but it reduces the cost of your units and so increases the gain when you sell.