The Lok Sabha approved the Taxation and Other Laws (Amendment) Bill, 2026 on August 6, 2026 which includes a significant amendment about tax laws of business trusts. For individual investors, this means that if they invest in REITs, InvITs or REIT, and the trust has chosen the new tax regime, the dividend will be tax-exempt. Previously, dividends were tax-exempt only if the trust had opted for the old tax regime.
Another positive update is that the maximum effective tax rate under the old tax regime is 34.94%, while under the new tax regime, it drops to 28.60% for REIT and InvIT trusts. This suggests that if the REIT, InvIT trust has such an internal structure that benefits from switching to the new tax regime, the respective REIT or InvIT can have more distributable cash for reinvestment or distribution to unitholders.
However, deciding to switch the tax regimes isn't a simple choice, as each REIT and InvIT trust needs to assess whether switching to the new tax regime is beneficial for them and their unitholders.
Also there is a catch with the new tax regime which is that if a trust opts for the new tax regime, it has to pay a 25% surcharge instead of the 10% surcharge payable under the old tax regime. Experts believe that beyond the dividend tax exemption, the real opportunity lies in more potential for greater distributable surplus for REIT, InvIT investors, if the trust can make it work.
An FAQ from the Income Tax Department read as follows: "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 optionunder section 200 of the Income-tax Act, 2025 to move to new tax regime."
Read on for a complete analysis.
The maximum effective tax rate under the old tax regime is 34.94% but under new tax regime, it is 28.60% for REIT, InvIT trusts
The effective tax rates under the old tax regime and the new tax regime are summarised below:
| Particulars | Income ≤ Rs 1 crore | Income > Rs 1 crore, but ≤ Rs 10 crore | Income > Rs 10 crore |
| Old Tax Regime | |||
| Turnover or gross receipts in financial year 2024-25 ≤ Rs 400 crores | 26 %(Nil surcharge) | 27.82% (surcharge rate of 7%) | 29.12%(surcharge rate of 12%) |
| Turnover or gross receipts in financial year 2024-25 ≤ Rs 400 crores | 31.20% (Nil surcharge) | 33.38%(surcharge rate of 7%) | 34.94%(surcharge rate of 12%) |
| New Tax Regime | |||
| Pre Amendment | 25.17%(surcharge rate of 10%) | ||
| Post Amendment | 28.60%(surcharge rate of 25%) | ||
Source: Dentons Link Legal
Mitesh Jain, partner, Dentons Link Legal, says that as can be seen from the above table, the maximum effective tax rate for companies under the old tax regime is 34.94% whereas under the new tax regime, it is only 28.60% (even after the proposed increase in surcharge rate from 10% to 25%).
Further, Jain says that the taxation under the old tax regime and the new tax regime differ on various parameters such as tax treatment to certain deductions and exemptions, applicability of MAT, eligibility to claim MAT credit etc. resulting in different tax liability under the old tax regime and the new tax regime.
Therefore, Jain from Dentons Link Legal says that with the increase in surcharge rate under the new tax regime, SPVs will have to undertake a thorough overall cost-benefit analysis under both the tax regimes by not only considering the tax impact at SPV level but they will also have to factor in savings in tax cost for unitholders due to the proposed exemption on dividend income received from SPVs opting for the new tax regime.
Jain says that because of the following reasons, SPVs are likely to opt for new tax regime:
- SPVs are liable to pay tax under MAT in old tax regime
- SPVs have accumulated MAT credit
- Unit holders would receive higher net (post tax) proceeds on distribution
How REIT unitholders can benefit
REITs invest in real estate assets and generate income either by rental or property price appreciation. So if the new tax regime results in lower tax for the REIT, that can potentially mean more distributable cash for the unitholders. Or, the REIT can use the surplus to buy more assets, thus increasing the distributable cash for unitholders in the long run. So either way, REIT unitholders benefit.
Rajesh Deo, Chief Financial Officer, Nexus Select Malls, said to ET Wealth Online : "The ability for REIT SPVs to evaluate and opt for a concessional tax regime, while also providing for the utilisation of accumulated MAT credits, can materially improve cash-flow efficiency at the asset level."
According to Deo, it is important for REITs because every rupee of capital released from tax inefficiency can potentially be used for reinvestment, deleveraging, asset enhancement or distributions to unitholders.
For Nexus Select REIT (NSE code: INE0NDH25011), Deo says the provision around MAT credits is particularly meaningful.
Deo says: "In our case, the MAT credit of a significant amount as of March 2026 represents a tangible balance-sheet asset, and the proposed framework could enable a more efficient utilisation of such credits."
Neeraj Toshniwal, CFO Knowledge Realty Trust and Executive Committee Member Indian REITs Association (IRA) says that the new provisions under the New Tax Regime deliver three clear benefits:
- Tax-free dividends : Dividends distributed by REITs remain exempt from tax in the hands of unit holders.
- MAT credit relief : Accumulated MAT credit can be adjusted against up to 25% of annual tax liability.
- No MAT burden : Minimum Alternate Tax will not apply under the new regime.
Toshniwal says: "Therefore, the benefit is not limited to lower tax rates. REITs can also benefit from MAT credit and the removal of MAT under the new regime. These additional tax savings will ultimately benefit unitholders through higher distributions."
How InvIT unitholders can benefit
Unlike REITs, InvITs invest in infrastructure assets like highways, bridges, etc which generate incomes for their unitholders. So like REITs, InvITs can also benefit from a lower tax outgo after evaluating the internal framework.
Sandeep Jain, CFO, NDR InvIT, says InvITs should definitely consider the new tax regime, especially given the potential difference in effective tax rates. The maximum effective tax rate under the concessional regime is around 28.6%, against 34.9% under the old regime, a gap of more than 6 percentage points.
Jain from NDR InvIT says that for an InvIT, this can be meaningful because a lower tax outgo at the SPV level can leave more cash being available for distribution to unitholders. The decision, however, needs to be based on the overall tax position, including the impact of deductions, MAT and MAT credit.
Jain says: "Where the new regime results in a lower overall tax outgo, it can be a meaningful lever to improve distributable cash flows and enhance investor value."
If the surcharge is 25% under the new regime versus 10% under the old regime, why would an InvIT opt for the new regime?
According to Jain from NDR InvIT, the surcharge should not be viewed in isolation. The more relevant consideration for an InvIT is the final tax liability after factoring in the base tax rate, surcharge and other provisions applicable to the structure.
Jain says: "Even with a 25% surcharge, the concessional regime can result in a maximum effective tax rate of around 28.6%, compared with about 34.9% under the old regime. So, the higher surcharge does not necessarily negate the benefit of the lower tax rate."
Ultimately, the question that the InvIT has to consider is how much cash remains after paying tax for distribution to investors. According to Jain, if the new regime leads to a lower overall tax outgo after considering MAT, MAT credit and applicable deductions, there is a clear economic rationale for switching the tax regime.
