REIT distribution tax: the three-component breakdown

REITs must distribute at least 90% of distributable cash flows. These distributions come in three components with different tax treatment:

1. Interest income distributed: Taxable in investor's hands at slab rate. Most REIT distributions are this component. REITs invest in SPVs as debt, interest flows up. 2. Dividend from SPV: Tax-free if SPV has paid DDT (old regime). Under new regime: taxable as dividend at slab rate. Check which regime the SPV operates under. 3. Capital gains: Passed through as capital gains at 12.5% (LTCG, if REIT units held 36+ months) or 20% (STCG, less than 36 months). Return of capital: Some portion may be return of capital, not taxable, but reduces cost basis for future gains calculation.