India’s Wealthy Pivot to Real Estate and Infrastructure: Analyzing Capital Allocation, GST, and Tax Governance

India’s high-net-worth investors and family offices are significantly recalibrating their asset allocation strategies. Following two years of muted domestic equity performance, wealthy individuals are directing capital away from traditional stock markets toward real estate, logistics, infrastructure, and private credit. This strategic pivot highlights a growing appetite for stable, cash-flow-generating real assets that provide yield resilience in a changing macroeconomic environment.

The Pivot to Real Assets: Market Drivers and Growth Trends

The movement toward tangible, yield-bearing investments reflects shifting return dynamics across capital markets. Over the past two years, India’s benchmark Nifty 50 index delivered total returns of approximately 7%, standing in stark contrast to the 29% gain posted by the S&P 500. This widening gap has encouraged domestic capital to search for alternative avenues offering predictable, high-yield distributions.

Alternative Investment Funds (AIFs) have served as the primary vehicle for this capital deployment. Capital raised by AIFs from domestic investors nearly doubled, reaching $64.5 billion between March 2024 and June 2026. While private credit leads overall investor interest, institutional asset managers and family offices are deploying substantial funds into property, logistics, and energy projects.

A joint report published in August by Julius Baer and EY India revealed that Indian family offices now allocate between 40% and 45% of their portfolios to alternative assets, including private credit, venture capital, Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs). Historically, these portfolios were predominantly weighted toward listed equities, bank fixed deposits, physical bullion, and direct residential property.

Fund managers point to attractive risk-adjusted yield spreads as a primary driver. Local real asset funds typically aim for targeted annual returns between 12% and 15%. By comparison, yields on three- to five-year AAA-rated corporate bonds remain below 8%, as discussed in analyses on Easing Crude Prices and Softening Bond Yields: Evaluating Macroeconomic Relief, Borrowing Costs, and GST Compliance Mechanics. Although actual investment outcomes depend on leverage, asset management efficiency, and market valuations at exit, the yield differential remains compelling.

Fundraising Momentum Across Asset Managers

At least six newly launched funds are seeking to raise upwards of $1.25 billion dedicated to Indian real estate and infrastructure assets. Major asset managers are expanding their real asset platforms to capture this demand:

• Nuvama Wealth Management Ltd.: Managing $39 billion in client assets, the firm partnered with Cushman & Wakefield Management to raise approximately $420 million for a dedicated commercial real estate fund, with plans to launch additional vehicles focused on income-generating assets and infrastructure.
• Neo Wealth: Managing and advising $15.4 billion in assets, Neo Wealth closed approximately 10.4 billion rupees ($110 million) for its Real Asset Yield Fund targeting REITs and InvITs, alongside raising over $500 million across two tranches of its Neo Infra Income Opportunities Fund.
• EAAA India Alternatives Ltd.: Following its recent public listing in Mumbai, India’s largest listed alternative asset manager oversees nearly $5.2 billion in fee-paying assets as of June, including approximately $3 billion in real asset funds across 10 active vehicles and two InvITs.

Unlisted structures investing in operational assets offer investors income during the holding period alongside potential capital gains upon asset sale or public listing into REITs or InvITs. However, navigating this transition requires strict attention to the regulatory and tax framework governing real assets.

GST Mechanics and Tax Framework for Real Assets and AIFs

The structural pivot of high-net-worth capital into commercial real estate, logistics facilities, and infrastructure carries deep direct and indirect tax implications. Understanding the interplay between Goods and Services Tax (GST) rules, tax pass-through mechanics, and corporate structuring is vital for fund sponsors and institutional investors alike.

1. GST Framework for Commercial Property, Warehousing, and Logistics

Under Indian GST law, the transfer of land or completed buildings is excluded from the levy of GST under Schedule III of the Central Goods and Services Tax (CGST) Act, 2017. However, the commercial leasing of real estate and warehousing space attracts GST at a standard rate of 18%.

A critical tax compliance issue arises during the construction and development phase of real assets. Works contract services and construction materials incur 18% GST. Under Section 17(5)(d) of the CGST Act, Input Tax Credit (ITC) is generally restricted on goods and services received for the construction of immovable property on one’s own account. This inability to claim full ITC creates an embedded tax burden that increases project capital expenditures and impacts net internal rates of return (IRR) for real asset funds.

2. Taxation of Alternative Investment Funds (Category I & II)

Most real estate, infrastructure, and private debt vehicles operate as Category I or Category II Alternative Investment Funds under SEBI regulations. Under Section 115UB of the Income Tax Act, Category I and II AIFs enjoy tax pass-through status. Income generated by the fund (other than business income) is taxed directly in the hands of the unit holders as if the investment were made directly by them.

From a GST perspective, while the investment flows and income distributions within the fund pass through without direct GST levy, investment management fees charged by Asset Management Companies (AMCs) attract 18% GST. Asset managers must ensure clear invoice documentation and compliance structuring, particularly when allocating management fee expenses across different sub-funds and SPVs.

3. Income Tax and GST Mechanics for REITs and InvITs

For investments flowing into listed or unlisted REITs and InvITs, specialized tax provisions apply under Section 10(23FC) and Section 10(23FCA) of the Income Tax Act. Interest and dividend distributions passed from Special Purpose Vehicles (SPVs) to the business trust are generally exempt at the trust level and taxed at the unit holder level based on the character of the income.

At the operational SPV level, property management and maintenance services attract 18% GST. Proper reconciliation of output tax liabilities on lease rentals against eligible input credits on facility management, security, and utility services is essential to maintain cash flow efficiency. Broad-based fiscal shifts, as evaluated in Samvat 2083 Currency and Bond Outlook: Fiscal Impact, GST Buoyancy, and Corporate Compliance, demonstrate how tax compliance rigor impacts investor net yields.

Compliance Imperatives for Family Offices and Asset Managers

As family office portfolios move further into complex real asset structures, regulatory and compliance duties increase. Investors and fund managers must focus on several key operational priorities:

• Tax Deducted at Source (TDS) Compliance: Ensuring correct withholding tax rates under Section 194I (rent) and Section 194LBA (distributions from business trusts) to prevent penalty exposure.
• GST Place of Supply Rules: Properly identifying the place of supply for immovable property leases and cross-border management services to ensure correct CGST/SGST or IGST discharge.
• Formalization of Transactions: Maintaining transparent accounting records across multi-layered SPV structures, reinforcing the broader economic shift documented in A Decade After Demonetisation: Cash Persistence, Formalization, and the GST Compliance Landscape.

By pairing disciplined asset selection with proactive GST and income tax structuring, asset managers and family offices can effectively optimize net returns while navigating India’s evolving financial landscape.

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