Section 10(23FCA) of the Income Tax Act provides a tax exemption for rental income earned by a Real Estate Investment Trust (REIT) from directly owned real estate assets.
Key Features:
- Eligible Entity: Only REITs (not InvITs or other business trusts).
- Nature of Income: Income from renting, leasing, or letting out real estate assets.
- Ownership Condition: The REIT must own the real estate asset directly—not merely through a Special Purpose Vehicle (SPV).
Definition of “Real Estate Asset”:
As per SEBI’s REIT Regulations, it includes:
- Commercial properties like office buildings, malls, warehouses, etc.,
- Owned directly by the REIT (not via SPVs).
Example:
Suppose UrbanSpace REIT directly owns a commercial office tower in Mumbai and leases it to multiple tenants. It earns ₹25 crore in rental income during FY 2024–25.
Since:
- The REIT owns the property directly,
- The income is from leasing real estate,
the entire ₹25 crore is exempt under Section 10(23FCA).
However, if the property were held through an SPV, the rental income would not qualify under this section—it would instead be routed through the SPV and taxed differently.
