The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, which restores dividend tax exemption for REIT and InvIT unit holders. This change removes tax uncertainty for investors, regardless of the tax regime chosen by the underlying Special Purpose Vehicle (SPV). To offset this, the government has increased the surcharge for SPVs opting for the concessional tax rate to 25%, raising their effective tax burden.
On August 6, 2026, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, marking a significant update for the Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvIT) sector in India. The amendment directly addresses a long-standing tax hurdle for investors by restoring the dividend tax-exempt status for unit holders.
Previously, investors faced uncertainty because the taxability of their dividends often depended on the specific corporate tax regime chosen by the underlying Special Purpose Vehicle (SPV). If an SPV opted for the newer, lower corporate tax rate, the tax-exempt status of the dividends for the unit holder was often in question. This legislative change removes that ambiguity, ensuring that dividend income remains tax-exempt for unit holders, regardless of which corporate tax regime the SPV selects.
To maintain fiscal neutrality, the government has introduced a trade-off at the SPV level. For SPVs that choose to operate under the concessional corporate tax regime, the surcharge has been increased from 10% to 25%. This adjustment results in an effective corporate tax rate of 28.6% for these entities. While this increases the cost burden for the SPVs, it provides the legal clarity needed to simplify the investment structure for REITs and InvITs.
For investors, this clarity is a positive development. Tax uncertainty has historically been a friction point, discouraging potential capital inflows into these trusts. By stabilizing the tax treatment of dividends, the government aims to improve the attractiveness of these instruments as steady income vehicles. This could improve the valuation appeal of trusts that were previously navigating complex tax-planning constraints.
The legislation also includes broader financial reforms, such as easing safe harbor conditions for fund managers, effectively reducing the compliance conditions required to qualify as an eligible investment fund from 13 to 5. These measures, combined with the REIT and InvIT tax clarity, reflect an effort to improve India's appeal as a jurisdiction for fund management and infrastructure financing.
As the next step, the Bill must now be passed by the Rajya Sabha and receive Presidential assent to be formally enacted into law. Investors should track official notifications for the implementation timeline, as the final law will confirm the exact date these tax changes become effective.