Real-estate tokenisation is a persistent idea in India's Web3 conversation: put a property, or an interest in it, on a blockchain, split it into tokens, and let investors trade fractions of real estate the way they trade equity or crypto. The technology is not the hard part. The hard part is what the token actually is in the eyes of Indian law a question that determines which statute governs, which regulator has jurisdiction, how the interest is taxed, and what happens if the platform fails.
Tokenisation does not create a new asset class in Indian law; it creates a new representation of an existing legal interest, which still has to fit within the Transfer of Property Act, the Companies Act, or the securities laws.
Three Different Things Called "Tokenisation"
It matters which of three structures is in play, since each sits under a different legal regime. Direct property tokenisation contemplates a token that itself represents title the digital equivalent of a sale deed. SPV-based tokenisation, the more common model, has an SPV (a company or trust) hold the real estate, with investors receiving tokens representing shares, units or debentures in that SPV. Contractual or revenue-right tokens confer no ownership interest at all merely a blockchain-recorded claim to an income stream, such as rental yield, without any proprietary interest in the asset or the vehicle holding it. These are legally distinct instruments, and Indian law treats each differently.
Can a Token Transfer Title? The Transfer of Property Act and Registration Act
Can transferring a token, on-chain, legally transfer ownership of land or a building in India? Under current law, no. Section 5 of the Transfer of Property Act, 1882 defines a "transfer of property" as an act by which a living person conveys property to another, and Section 54 requires a sale of tangible immovable property valued at Rs 100 or more to be effected only by a registered instrument. The Registration Act, 1908 makes registration compulsory, and an unregistered document affecting immovable property is, with narrow exceptions, incapable of passing title.
Neither statute recognises a blockchain entry as a "registered instrument." No mechanism allows a wallet-to-wallet token transfer to satisfy the execution, stamping and registration requirements Indian law attaches to a conveyance of land, and the sub-registrar system remains the authoritative record of title a position that will not change without legislative amendment, which India has not signalled.
The practical consequence: a "direct property tokenisation" model where the token itself is marketed as equivalent to title is not currently viable under Indian property law. A legally sound structure necessarily routes ownership through a conventional, registered instrument in favour of an SPV, confining the token to an interest in that entity, not in the land itself.
Where the Companies Act and SEBI Enter the Picture
Once the token represents an interest in an SPV rather than the land directly, the analysis shifts to company and securities law where most of the real regulatory exposure lives. If the token represents equity, Section 56 of the Companies Act, 2013 and the Depositories Act, 1996 govern transfer and holding, largely through recognised depositories rather than a standalone blockchain ledger. If it instead represents a right to income without formal shareholding, it may still fall within the wide definition of a "security" under the Securities Contracts (Regulation) Act, 1956, or a "collective investment scheme" under Section 11AA of the SEBI Act, 1992, wherever money is pooled from multiple investors for a common enterprise with returns arising from a third party's efforts.
The label on the token is irrelevant; economic substance governs. A token pooling investor money into an SPV and promising manager-generated returns is, in substance, a security or collective investment scheme whatever the marketing calls it. Blockchain changes the recordkeeping technology, not the legal character of the instrument.
REITs, SM REITs, and Why Blockchain Does Not Displace Securities Law
India already has a purpose-built framework for pooled, fractionalised real estate investment. REITs have been regulated since 2014, but the more relevant recent development is the Small and Medium REIT (SM REIT) framework, introduced by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2024, notified 8 March 2024. SM REITs form a distinct category holding assets of at least Rs 50 crore, well below the Rs 500 crore minimum for conventional REITs. A person must pool at least Rs 50 crore and issue units to at least 200 investors, with investors entitled to income generated while day-to-day management remains with the investment manager. SM REITs are constituted as trusts holding assets through wholly-owned SPV subsidiaries, with at least 95% of scheme assets required to be revenue-generating.
SEBI built this framework because the pre-existing fractional ownership platform (FOP) model retail investors buying undivided shares in commercial property through an unregulated SPV was economically identical to a REIT without any investor protections. SEBI's concern was the lack of uniformity in disclosure standards, lack of transparency in valuation, and absence of professional oversight in FOPs, particularly given non-institutional investor participation. SM REITs were designed as vehicles through which pooled investors hold securities issued by SPVs owning real estate on a fractional basis, bringing that activity inside SEBI's perimeter.
This history is directly instructive for tokenisation. A blockchain platform that pools retail money into an SPV holding commercial property, issuing tokens representing a claim on rental income and appreciation, is doing precisely what FOPs did before regulation arrived. Recording the interest as a token rather than a folio entry changes the settlement layer, not the fact that money has been pooled, that returns depend on a manager's efforts, and that the arrangement meets the tests for a security or collective investment scheme. Blockchain is a recordkeeping mechanism, not a source of regulatory exemption.
Tax and Cross-Border Considerations
Two further layers change the commercial calculus. VDA taxation under Section 115BBH of the Income-tax Act, 1961 taxes gains on virtual digital assets at a flat 30%, with no loss set-off, plus 1% TDS under Section 194S. Whether a real-estate-backed token falls within the statutory VDA definition, rather than being taxed as a security or capital asset, is not free from doubt and will likely turn on the token's specific rights, with GST and stamp duty questions layered on top. FEMA restricts foreign investment in Indian real estate to limited permitted routes under the FEMA (Non-Debt Instruments) Rules, 2019, REITs being one; a token structure cannot route foreign capital outside these channels merely because the investment is denominated in tokens, since FEMA's substance-over-form approach applies equally to tokenised instruments.
A Practical Hypothetical
Consider a commercial office building in Bengaluru held by a private company (the SPV), which issues blockchain tokens to 5,000 investors, each entitling the holder to a share of rental income and any gain on sale. This raises questions the token cannot itself resolve. Do the tokens represent equity, debentures, or a bare contractual right, and was that instrument created in compliance with the Companies Act? Does pooling 5,000 investors' money constitute an unregistered collective investment scheme, falling foul of the SM REIT framework's requirement that such pooling occur through a registered scheme? Who is the legal owner on the sub-registrar's books, and what protects token-holders if the SPV's directors mortgage the building without consent? How is rental income taxed in token-holders' hands, and does the token attract VDA tax on transfer? Can the platform sell tokens to NRIs given FEMA's restrictions, and where does a token-holder rank in an SPV insolvency? None of this has a blockchain-specific answer it is answered by the Companies Act, SEBI's regulations, FEMA and the Insolvency and Bankruptcy Code, exactly as for a non-tokenised scheme.
The Realistic Model: Blockchain Inside the Structure, Not Instead of It
This points toward the model most likely to succeed under Indian law: blockchain as a technology layer operating within legally recognised REIT, SM REIT or SPV structures not as a replacement for the property deed or statutory ownership record. Title is held conventionally, through a registered instrument, by an SPV under a trust registered as a REIT or SM REIT. Investor interests are created as properly constituted securities, issued in compliance with the Companies Act, Depositories Act and REIT Regulations. A blockchain ledger can then be layered on top to record beneficial interests or automate income distribution, provided it reconciles with the depository and registrar systems that remain legally authoritative.
This mirrors the direction regulators are exploring: the RBI has piloted deposit tokenisation using its wholesale CBDC as a settlement layer over conventional bank deposits, and SEBI has trialled tokenised fractional access to listed equity within a regulatory sandbox in each case blockchain sits on top of an already-regulated instrument rather than displacing it. No comparable SEBI framework yet exists for tokenised real estate; this remains genuine regulatory uncertainty, and platforms operating today are structuring by analogy to SM REIT and CIS principles, not under bespoke rules.
Conclusion: Integration, Not Bypass
India already has much of the legal architecture real estate investment requires: property law defining how title moves, company law defining how pooled capital is structured, securities law regulating offers to the public, and since 2024 an SM REIT framework built to bring fractional real estate investment inside a regulated perimeter.
The genuine question is not whether blockchain can replace this architecture on current law, it cannot substitute for a registered sale deed, nor exempt a pooled investment from securities regulation by changing the recordkeeping medium. The real question is how tokenisation can be integrated into the existing REIT, SM REIT and SPV framework to improve liquidity and widen access, while keeping title, securities compliance and investor protection exactly where Indian law places them. Structures built on that premise have a coherent legal foundation; structures built on the premise that a token can step outside company, securities or registration law do not and, as the FOP-to-SM-REIT transition demonstrated, the regulatory perimeter tends to catch up with them.
At Fathom Legal, we believe the opportunity in tokenised real estate lies not in attempting to bypass India's existing regulatory architecture, but in designing structures where technology and law work together. As blockchain-based ownership and investment models evolve, successful platforms will need to address property title, securities regulation, corporate structuring, taxation, FEMA and investor protection as interconnected questions rather than separate compliance exercises. Our Web3 and Emerging Technology and Real Estate and REIT practices work at this intersection, advising founders, investors and platforms on structuring innovative models within India's evolving regulatory framework.
This article is for general informational purposes and does not constitute legal advice. The regulatory position on tokenised assets in India continues to evolve; structuring decisions should be taken only after advice tailored to the facts of the transaction.