Taxpayers have just four days before the 31 July deadline to submit their income tax returns.
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are increasingly popular for earning regular income without directly owning property or assets.
Many taxpayers remain unsure how to report these earnings in their Income Tax Return (ITR). Not every payout is taxed the same way, making accurate reporting essential.
Types of income from trusts
Distributions from REIT or InvIT may include interest, dividends, rental income, capital repayment or a mix of these. Each component is taxed differently, so investors must review the trust's distribution statement before filing.
Errors here can make calculations inaccurate.
Here are different types of receipts and how they are reported in the ITR.
Choosing right ITR form
The choice of the ITR form depends on the taxpayer’s income profile and past taxation history. Investors with only investment income may be eligible for ITR-1 if they meet the prescribed conditions.
For cases where taxpayers report capital gains from the sale of InvIT or REIT units, they are generally required to file ITR-2, whereas all individuals with professional or business income generally are required to file ITR-3.
This is yet another important aspect that must be carefully considered before proceeding with tax submissions, to avoid incorrect tax filings and notices later.
Documents to keep ready
To ensure accurate reporting, you should keep the following documents ready:
- The REIT or InvIT distribution statement
- Broker transaction records
- Annual Information Statement (AIS)
- Form 26AS, purchase and sale details of units, and
- Bank statements showing the credited payouts
Ensure these records match the income reported on the return to help avoid discrepancies, errors or omissions and reduce the chances of notices or delayed refunds.
Pass-through taxation explained
REITs and InvITs follow a pass-through taxation framework, meaning the tax treatment depends on the nature of the income received rather than on the investment itself.
Reviewing the distribution breakup and reporting each component under the correct ITR schedule can simplify the filing process, improve compliance and help investors avoid reporting errors.
