The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, allowing Real Estate Investment Trusts (REITs) to switch to a concessional tax regime. This change enables the use of previously trapped Minimum Alternate Tax (MAT) credits, which could boost distributable cash flows. Investors should note that the bill awaits final parliamentary approval and involves a transition process with specific tax adjustments.
The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, marking a significant development for the Indian real estate investment landscape. This legislative move is designed to provide greater financial flexibility to Real Estate Investment Trusts (REITs) and their Special Purpose Vehicles (SPVs) by refining the tax framework under which they operate.
Access to Trapped MAT Credits
One of the most impactful changes in the new bill is the ability for SPVs within a REIT structure to utilize accumulated Minimum Alternate Tax (MAT) credits. In the past, many of these credits remained on the books as non-utilizable assets because the SPVs could not find a way to offset them effectively. Under the new provisions, these entities can now leverage these credits once they transition to a concessional tax regime.
For example, industry reports indicate that Embassy REIT could potentially recover economic value from approximately ₹592 crore in accumulated MAT credits. This transformation of an accounting entry into usable tax savings represents a direct improvement in the potential cash flow available for distribution to unitholders.
The New Tax Regime Trade-Off
The bill allows SPVs to opt for a concessional corporate tax rate, which simplifies the tax structure by removing future MAT obligations. However, this transition comes with a calculated trade-off that investors should understand. While the base tax structure is more favorable, the bill introduces a higher surcharge of 25% for SPVs choosing this new regime, up from the current 10%. This increase is expected to partially offset the benefits of the lower corporate tax rate, meaning the net positive impact on the bottom line will be a result of balancing these new variables.
Implementation and Investor Outlook
It is important for investors to note that this is not an instantaneous windfall. The bill requires approval from the Rajya Sabha and final assent from the President before it officially becomes law. Furthermore, the usage of MAT credits is subject to a cap, limited to 25% of the annual tax liability. This suggests that the cash flow improvement will likely be realized in a gradual, phased manner rather than as a single large payment.
Several market players have already begun factoring these potential changes into their financial planning. For instance, entities such as Nexus and Knowledge Realty have provided guidance suggesting a potential increase of 2% to 3% in payouts for the 2027 fiscal year, assuming the bill is fully implemented. The shift is generally seen as an effort to keep the REIT model tax-neutral, ensuring that the tax burden remains manageable while keeping these investments attractive for both institutional and retail investors. Moving forward, the key monitorables for shareholders will be the final notification of the rules and the specific timelines that various REITs set for adopting this new tax structure.