Summary:
India’s proposed tax amendment could make REITs and InvITs more attractive by exempting unitholders from tax on dividends from underlying SPVs, regardless of the SPV’s corporate tax regime. However, SPVs using the concessional tax regime may face a higher surcharge, potentially reducing distributable cash flows. The change could particularly benefit high-tax-bracket investors, NRIs and institutional investors seeking higher post-tax income.
India’s Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are likely to become more tax-efficient after amendments proposed in the Taxation and Other Laws (Amendment) Bill, 2026. The amendment resolves the tax-related issue faced by the holders of dividends paid out by underlying Special Purpose Vehicles (SPVs) operating under the reduced corporate tax rate scheme. The Bill was approved by the Lok Sabha on August 6 and was reportedly passed by the Parliament thereafter.
The amendment follows on the heels of other developments which make REITs increasingly mainstream in India’s capital markets. NSE Indices has allowed inclusion of REITs into Nifty equity index from the September 2026 reconstitution period.
What Changes for REIT and InvIT Investors?
Prior to the amendment, the taxation of dividends has depended upon the tax scheme chosen by the underlying SPV. The dividends that flowed through to the unitholder would have been exempted where the SPV has stayed under the old corporate tax scheme. But if the SPV chooses to follow the concessionary scheme, then the dividend becomes taxable in the hands of the investors.
The effective tax liability of the investor in respect of these dividends would depend upon his/her category and could vary anywhere between 10% to 36%. The proposed amendment would lead to an exemption of dividend for the unitholder regardless of the tax scheme being followed by the underlying SPV.
The amendment has made it more tax neutral and would especially help those investors whose tax liability was on the higher side of the slab.
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Higher Tax at SPV Level Is the Catch
The investor level exemption is not to mean that the whole structure is exempted from taxes. To achieve neutrality in taxation, the government is suggesting an increase in the surcharge levied on SPVs of business trust who avail themselves of concessional corporate taxes from 10% to 25%.
The effective corporate tax rate would then go up from around 25.2% to 28.6%. This means that although the investors get favorable treatment on dividends, the increased tax on SPVs will decrease their distributable cash flows and net asset value marginally.
Income in form of interest and rental that is distributed via REIT will also be taxed depending on the kind of tax applicable to them.
Who Could Benefit the Most?
The simplicity of this structure may attract both individual investors, NRIs, HNIs, UHNIs, family offices, institutions, and corporate treasuries towards investments in REITs and InvITs. The increased post-tax dividend yield for those investors who pay higher taxes will become more relevant.
But taxation is not the only element to be considered. Yield on distributions, interest rate trends, quality of assets, occupancy rates, leverage and ability of underlying properties or infrastructure assets to create stable cash flows become relevant as well.
