New Tax Bill Boosts REITs and InvITs, Driving Optimism in India’s Institutional Business Sector

The Taxation and Other Laws (Amendment) Bill, 2026, recently passed, outlines significant changes to the Income-tax Act, 2025, specifically addressing Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). A focal point of the amendment is the introduction of tax-free dividends from Special Purpose Vehicles (SPVs) to REIT and InvIT investors, irrespective of whether the SPV adheres to the old or new tax regime. However, SPVs opting for the new tax regime will face a heightened surcharge of 25%, a notable increase from the 10% applicable to other companies. Transitioning SPVs will also need to navigate the implications of Minimum Alternate Tax (MAT), with reduced rates and an effective limit on accumulating MAT credits set after April 1, 2026.

This legislative change has crucial implications for both the common citizen and market participants. For retail investors in REITs and InvITs, the tax exemption on dividends is a favorable development that could enhance yields and attract greater investment in infrastructure and real estate sectors. However, the potential phased shift of infrastructure SPVs to the new tax regime, primarily those with substantial MAT credits, may inadvertently increase costs for these institutional investors over time. As these SPVs realign their tax strategies, market participants should remain vigilant about the evolving tax landscape and its impacts on investment flows and asset valuations.

Looking ahead, the government and the RBI are likely to monitor the gradual transition of SPVs to the new tax regime closely. The phased implementation could lead to an increased number of SPVs adopting the new framework over the upcoming quarters, which may introduce volatility in tax-exempt institutional investor costs. Stakeholders should prepare for adjustments in compliance and regulatory frameworks as the bill’s effects materialize. The long-term perspective will revolve around how effectively the benefits of the amended tax regime can stimulate investment in critical infrastructure while balancing tax obligations and investor sentiment in the real estate market.

Source: The Hindu

(Expert Note: This report was independently prepared by the Wealthova Economy team.)