Real-estate taxation is where investors lose more returns than they realise. Get the basics right and your after-tax yield improves without any new investments.
This is a primer, not tax advice. Rules change — as of April 2026 — and your specific situation may vary. Consult a Chartered Accountant before acting.
Rental income (direct property)
Rental income is taxable under 'Income from House Property.' You get a 30% standard deduction plus home-loan interest deduction (under Section 24) from the gross annual value. Net taxable rent is then added to your slab income.
Capital gains on property sale
- Holding < 24 months: short-term capital gain, taxed at slab rate.
- Holding ≥ 24 months: long-term capital gain. As of 2024 amendments, LTCG on property is 12.5% without indexation, OR the taxpayer may still elect 20% with indexation for property acquired before 23 July 2024 (subject to conditions).
- Exemptions available under Sections 54 / 54F / 54EC if proceeds are reinvested in residential property or specified bonds.
Fractional / SPV investment returns
When you invest in a private SPV, you typically receive two streams: interest on Compulsorily Convertible Debentures (CCDs) and dividends / buy-back consideration on equity. The taxation of each is different:
- CCD interest is taxed at slab rate in your hands; the SPV withholds TDS before remitting.
- Equity dividends are taxed at slab rate; TDS applies on amounts above thresholds.
- Buy-back / exit proceeds trigger capital gains depending on the holding period and security type.
REIT / SM-REIT distributions
REIT unit distributions have three components, each taxed differently: interest (slab rate), dividend (taxed or exempt based on SPV election), and amortisation of debt (treated as capital repayment, not taxed until the unit is sold). The REIT provides a tax statement each year.
TDS you will see on statements
- Section 194-I: TDS on rent paid to residents (10% above ₹2.4 lakh / year).
- Section 194A: TDS on CCD interest (10% above thresholds).
- Section 194LBA: TDS on REIT distributions for residents and non-residents.
Common planning moves
- Hold property for more than 24 months to unlock LTCG treatment.
- Use Section 54EC bonds (limit ₹50 Lakhs) to defer LTCG.
- Use the 30% standard deduction on rental income for owned property.
- Time exits to align with lower-income years where feasible.
A word on GST
Commercial rent attracts GST at 18% (typically borne by tenant, credit-eligible for the tenant). Residential rent to an unregistered individual is GST-exempt. Watch for how this flows through SPV-level accounts.