REIT, InVIT dividend income: What is tax-free under the Taxation and Other Laws (Amendment) Bill, 2026?

A significant modification for REIT and InvIT investors is proposed in the Taxation and Other Laws (Amendment) Bill, 2026. The goal of the proposed change is to prevent investors from losing the tax exemption on the dividend portion of their InvIT or REIT distribution simply because the underlying Special Purpose Vehicle (SPV) chooses the concessional corporate tax system.

How REITs and InvITs operate

REITs and InvITs are business trusts that invest in real estate and infrastructure assets. They may use Special Purpose Vehicles (SPVs), which are underlying corporations, to hold and manage these assets.

To put it simply, a REIT or InvIT unit is purchased by an investor. Through its SPVs, the business trust thereafter makes investments in the underlying assets. The business trust may receive dividends on the SPVs' income from such assets, which it may subsequently distribute to unitholders.

The government FAQ refers to a “business trust” and the “SPV of such business trust”.

What is the current position?

The government FAQ uses the terms “old tax regime” and “new tax regime” in explaining the proposed amendment. In the case of companies/SPVs, these refer to the normal corporate tax regime and the concessional corporate tax regime under Section 115BAA, respectively. These should not be confused with the “old” and “new” tax regimes commonly used when discussing individual taxpayers.

So, in simple terms, when the FAQ says that an SPV is in the “new tax regime”, it is referring to the SPV opting for the concessional corporate tax regime under Section 115BAA.

The government explains how the structure works: “Business trusts are pass-through vehicles. They collect funds of unit holders and invest in real estate or infrastructure through a company (special purpose vehicle - SPV). The SPV pays tax on its profits and thereafter passes dividends to business trusts, which are passed on to the unit holders. At present, in the case of a business trust, the dividend is exempt in the hands of a recipient unit holder only if the SPV is taxable under the old tax regime. If the SPV is in the new tax regime, the exemption of dividends is not available to the unit holders.”

So, at present, the tax treatment of the dividend in the hands of the unit holder can depend on the tax regime chosen by the underlying SPV.

If the SPV is under the old tax regime, the dividend is exempt for the unit holder. If it moves to the new tax regime, the exemption is currently not available.

What is the proposed change?

The Bill proposes to remove that link. The FAQ states: “Clause (b) of the Schedule V [Table: Sl. No. 5.D] is proposed to be omitted to provide exemption on dividend received by a unit holder, even where SPV has exercised the option under section 200 of the Income-tax Act, 2025 to move to new tax regime.”

The government is also explicit about who would get the benefit: “A unit holder shall be eligible for exemption on the dividend received from the SPV opting for new tax regime.”

In other words, if the SPV opts for the new tax regime, the unit holder would still get the exemption on the dividend received from that SPV, subject to the Bill becoming law in its proposed form.

Why is the government making this change?

One reason is the changes made to Minimum Alternate Tax (MAT). The FAQ states: “Minimum Alternate Tax (MAT) reforms were introduced by the Finance Act, 2026. In accordance with the said provisions, amendments have been made in section 206 of the Income-tax Act, 2025 (MAT provisions) so that MAT is final tax in the old regime and accumulated MAT credit can only be availed when a company shifts to the new tax regime.”

This created a potential issue for business-trust SPVs.

As the FAQ explains: “These amendments were made so as to enable companies to move to the new tax regime. Therefore, SPV of a business trust may also have to move to the new tax regime either to avoid final MAT tax in the old regime or to avail accumulated MAT credit in the new regime. This will lead to unit holders losing the exemption on dividend income.”

The proposed amendment is intended to avoid that outcome:

“Accordingly, to provide certainty, it is proposed to provide an exemption on dividend received by a unit holder, even where SPV has exercised the option under section 200 to move to the new tax regime”

The proposed amendment in the Finance Act, 2026 provides for an additional surcharge on the SPV where it opts for the new tax regime.

The FAQ states: “Yes, vide amendment in Finance Act, 2026, it has been proposed to levy an additional surcharge of 15% on such SPV, where the SPV is in new tax regime.”

“Further, it is also proposed to consequently levy an additional surcharge of fifteen percent on such SPV to compensate for the revenue loss on account of providing exemption to the unit holder where SPV is in new regime,” the FAQ further explains.

For investors, therefore, the important point is that the additional tax is being proposed at the SPV level, while the dividend exemption is preserved at the unit-holder level.

How does this affect REIT and InvIT investors?

Shruti Lohia, Partner - Tax, AQUILAW, explains the investor impact:

“For years, a REIT or InvIT investor's tax outcome turned on something entirely outside their control, whether the underlying SPV had opted for the concessional corporate tax regime. The Taxation and Other Laws (Amendment) Bill, 2026 removes that linkage and makes the dividend exemption regime-neutral. The trade-off sits at the SPV level: surcharge moves from 10% to 25% for these SPVs, pushing their effective rate to roughly 28.6% from about 25.2%. As a caution, the exemption covers only the dividend component, and the Bill is still pending in the Rajya Sabha”

That is perhaps the simplest way to look at the proposed change: the SPV's choice of tax regime would no longer determine whether the unit holder gets the exemption on the SPV dividend.

But the exemption is limited to the dividend component. It should not be taken to mean that all income or distributions received by a REIT or InvIT are tax-free.

"The amendment makes the dividend component of REIT/InvIT distributions tax-free in the hands of unitholders when the dividend is received by the REIT/InvIT from its SPV and then distributed to the unitholders, even if the SPV has opted for the concessional tax regime under Section 115BAA. However, interest income, rental income and other taxable components distributed by REITs/InvITs will continue to be taxable as per the applicable provisions," said Abhishek Soni, CEO & Co-founder, Tax2win.

Amit Shetty, CEO, Embassy REIT, has welcomed the proposal.

"We welcome this landmark reform and commend the Government for its progressive and forward-looking approach to strengthening India’s REIT framework and deepening the country’s capital markets. By enabling REIT SPVs to opt for the Concessional Tax Regime (CTR) and utilise accumulated MAT credits, while preserving the tax-exempt treatment of dividends distributed to unitholders, the Bill upholds the principle of tax neutrality that is fundamental to the REIT model," said Amit Shetty.

He added: “By enabling REIT SPVs to opt for the Concessional Tax Regime (CTR) and utilise accumulated MAT credits, while preserving the tax-exempt treatment of dividends distributed to unitholders, the Bill upholds the principle of tax neutrality that is fundamental to the REIT model.”

“REIT SPVs opting for this regime will also benefit from a lower tax rate and will not be required to pay Minimum Alternate Tax (MAT) going forward, ” noted Shetty.

He called the development: “a highly positive development for the sector and will further enhance investor confidence in India’s listed REIT market.”

What does this mean for a REIT or InvIT investor?

Today, if the SPV of the business trust is taxed under the normal corporate tax regime, the dividend received by the unit holder is exempt. But if the SPV opts for the concessional corporate tax regime under Section 115BAA, the unit holder can lose that exemption. The proposed amendment removes this distinction.

So, even if the SPV opts for the concessional corporate tax regime under Section 115BAA, the dividend received by the unit holder from that SPV would continue to be exempt, subject to the Bill becoming law in its proposed form.

For a REIT or InvIT investor, therefore, the important change is:

The SPV can opt for the concessional corporate tax regime under Section 115BAA without making the dividend received by the unit holder taxable.

However, this exemption is only for the dividend component received from the SPV. It does not mean that every component of a REIT or InvIT distribution is tax-free.