The Taxation and Other Laws (Amendment) Bill, 2026 has been passed by the Lok Sabha on 6 August 2026, bringing significant tax relief for investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). According to the government FAQ, Clause (b) of Schedule V is proposed to be omitted to provide exemption on dividend received by unit holders, even where the underlying Special Purpose Vehicle (SPV) has exercised the option under Section 200 to move to the new tax regime. This reform removes a key tax uncertainty for investors and provides greater flexibility to infrastructure and real estate companies in choosing the tax regime that best suits them.
Under the existing framework, business trusts are pass-through vehicles that collect funds from unit holders and invest in real estate or infrastructure through SPVs. As reported by the government FAQ, when the SPV is taxable under the old tax regime, the dividend is exempt for unit holders. However, if the SPV moves to the new tax regime, the exemption is currently not available to unit holders. The Finance Act, 2026 had unintentionally linked the dividend exemption to the tax regime chosen by the SPV, creating a difficult choice for infrastructure and real estate companies. They could either continue with the old tax regime to preserve the tax exemption for investors or shift to the new regime and risk making dividend distributions taxable.
The proposed amendment could deliver substantial tax savings for investors, particularly those in higher tax brackets. According to CA Parag Jain, tax head at 1 Finance, an investor in the 30% tax bracket receiving ₹75,000 as dividend from a REIT whose SPV has opted for the new regime currently pays approximately ₹23,400 in tax. If the Bill becomes law, that liability would fall to nil. As reported by Mint, Chintak Shah, associate director at Anand Rathi Wealth, described this as a welcome move particularly for HNI investors, expecting to improve post-tax returns from investments in REITs and InvITs. The change could make post-tax returns more predictable and remove the risk that an SPV changing its tax regime could alter the tax treatment of an investor's dividend income.
While the proposed exemption is significant, it applies only to specific components of REIT and InvIT distributions. According to CA Parag Jain, REIT and InvIT distributions can have multiple components including dividend, interest, rental income and capital-related components, with each receiving different tax treatment. Under the proposed change, only the dividend component from an SPV opting for the new tax regime would get the additional exemption. Interest income would continue to be taxable at the investor's applicable slab rate, rental income would maintain its existing tax treatment, and capital gains arising from the sale of REIT or InvIT units would remain taxable. For example, if an investor receives ₹1 lakh in total distributions with ₹60,000 as interest and ₹40,000 as dividend, only the ₹40,000 dividend would benefit from the proposed exemption, while the ₹60,000 interest income would remain taxable.
Industry leaders have welcomed the proposed changes as a significant development for India's REIT market. Amit Shetty, CEO of Embassy REIT, described the reform as a landmark development that strengthens India's REIT framework and deepens capital markets. He noted that REIT SPVs opting for the concessional tax regime will benefit from lower tax rates and will not be required to pay Minimum Alternate Tax (MAT) going forward. The development is expected to enhance investor confidence in India's listed REIT market by maintaining tax neutrality principles fundamental to the REIT model. Chanakya Chakravarti, Global Real Estate Investor and Capital Strategist, described the move as a step towards deepening the REIT ecosystem and attracting long-term institutional capital. Sumit Singhania, Partner at Deloitte India, said the continued changes to REIT and InvIT taxation underline the strategic role of these structures in attracting long-term capital into capital-intensive sectors. The broader policy objective is reflected in the other provisions of the Bill, which seeks to reduce tax and regulatory frictions and improve India's competitiveness as an investment destination.
