New Delhi, July 26 -- Investors can gain exposure to the real estate sector through physical property, listed Real Estate Investment Trusts (REITs), or REIT-based mutual funds. While all three provide access to the same asset class, their tax treatment differs significantly and can have a meaningful impact on post-tax returns.

The biggest difference lies in how capital gains are taxed. For listed REITs and REIT-based mutual funds, gains on investments held for more than 12 months qualify as long-term capital gains (LTCG) and are taxed at 12.5%. If sold within 12 months, the gains are treated as short-term capital gains (STCG) and taxed at 20%.

However, direct real estate has a longer holding period. A property must be held for more than...