Tax predictability or higher yields? What REIT investors really want from Budget 2026

In a year where Indian equities broadly returned moderate returns, Real Estate Investment Trusts (REITs) rewarded investors with healthy double-digit percentage price appreciation in 2025; supported by falling repo rates and ever-increasing demand for premium office spaces. Offering investors the opportunity to invest in large-scale real estate assets while earning dividend pay-outs from rental earnings, REITs are gradually emerging as the preferred investment choice for investors looking to diversify their portfolios beyond the traditional set of fixed-income instruments. What’s more, with 2025 also witnessing a reduction in the Long-Term Capital Gains (LTCG) holding period from 36 months to one year and rationalisation of the LTCG rate to 12.5% on gains exceeding ₹1.25 lakh accrued from the sale of listed REIT units; both retail and institutional investors are eagerly looking forward to further measures in the upcoming Union Budget 2026.

Policy consistency to boost investor confidence

For a country that aims to become a developed economy by 2047, REITs could play a pivotal role in attracting investments into India’s real estate sector and provide developers with a sustainable funding avenue to propel future growth. Towards this end, it is important that REITs gain popularity among both investors and real estate developers, in turn increasing the depth and breadth of India’s REIT market. Notwithstanding the continued efforts made by the Securities and Exchange Board of India (SEBI) in introducing reforms, key opportunities that could accelerate REIT adoption ought to be capitalised upon in the Union Budget 2026. From a real estate developer’s perspective, uniformity in stamp duty structures across different states and further reduction in the regulatory overlap between SEBI and the Real Estate (Regulation and Development) Act (RERA) could encourage more REIT listings in 2026 & beyond. Similarly, bridging gaps that currently exist between REIT guidelines and the Special Economic Zone (SEZ) framework could bring high-quality assets under the REIT umbrella. These moves could not only allow a larger set of real estate assets like warehouses, Global Capability Centres (GCCs), industrial parks etc. to be included into REITs, but also shape investor confidence as India aims to scale its REIT market.

Tax stability and treatment to encourage long-term investing

From the institutional and retail investor perspective, it is imperative that India finetunes the taxation framework to simplify tax treatment of all components of REIT distributions. This includes dividends, capital repayments, interest expenditure and their like; making sure to align tax treatment so as to entice long-term investors. For one, expanding tax-free dividend distributions to all REITs, irrespective of the tax regime opted for, can bring more uniformity and widen the range of REIT listings. Tax on REIT interest paid to a FPI to be capped at 5% to lift post-tax yields, broaden the global investor base, and channel stable, long-horizon capital into India’s listed real-asset platforms. Similarly, further rationalisation of GST rates on input materials and services can reduce cost pressures for developers while fiscal policy interventions aimed at encouraging participation from long-term mutual and pension funds could deepen the Indian REIT market. Thus, REIT investors and the real estate industry at large would like to see a more stable tax environment along with a bunch of fiscal measures to increase market depth in the upcoming Budget.

Enhancing liquidity and accelerating REIT adoption

Considering the fact that India currently has only five listed REITs, it is prudent that the Indian government undertakes key reforms that are focused on driving new listing and accelerating investor adoption. While tax incentives, policy reforms and repo rate reductions have supported the Indian REIT story so far, more structural measures are needed to attract greater liquidity and large-scale retail investor participation. Investor education initiatives that highlight how REITs can act as stable income-generating assets even in a high inflation external environment could bolster retail participation; even as the introduction of Small & Medium REITs (SME REITs) could potentially expand the ~₹1.66 lakh crore Indian REIT market by leaps and bounds in the foreseeable future. With SEBI already classifying RET units as equity-related instruments from 1st January 2026, the combination of increased mutual fund participation and any positive momentum brought about by the Union Budget could unlock significant growth opportunities for the entire real estate ecosystem.

(The author is Chairman & MD of Nisus Finance)