The proposal would allow eligible REIT and InvIT SPVs to opt for the concessional tax regime and use their accumulated Minimum Alternate Tax (MAT) credits.
At the same time, dividends distributed to unitholders would retain the proposed tax-exempt treatment even if the underlying SPV shifts to the concessional regime.
The Bill still needs to clear the Rajya Sabha and receive the President’s assent before becoming law.
How does the proposed change work?
REITs and InvITs typically hold their assets through SPVs. The tax paid by these entities affects the cash available within the trust structure.
Under the proposed framework, an eligible SPV opting for the concessional regime could benefit from a lower tax rate and use accumulated MAT credits, subject to the applicable conditions. The SPV would also not be liable to pay MAT going forward under the new regime.
However, the proposal comes with a higher surcharge of 25% for such SPVs. This means the final tax benefit will vary depending on the individual SPV’s tax position.
Kumarmanglam Vijay, Partner and Head of Direct Tax at JSA Advocates & Solicitors, said the Bill preserves the REIT/InvIT dividend exemption for unitholders even when the underlying SPV moves to the concessional corporate tax regime.
What does this mean for investors?
The key change for investors is that the choice of the concessional tax regime by an eligible SPV would not, under the proposal, take away the dividend exemption available to unitholders.
This could help maintain the tax-neutrality of the REIT and InvIT structure while allowing qualifying SPVs to reduce their tax burden.
Amit Ganatra, Partner at Khaitan & Co, said REITs, InvITs and their SPVs will need to assess the interaction between the proposed dividend exemption and the higher surcharge.
Importantly, the proposal does not make all REIT or InvIT distributions tax-free. The tax treatment can differ depending on the nature and source of the income.
Why do MAT credits matter?
The proposal could be particularly relevant for trusts with significant accumulated MAT credits.
Amit Shetty, CEO, Embassy REIT, said the proposed changes could, subject to the final provisions, restore the economic value of around ₹592 crore of accumulated MAT credits that the REIT had previously written off in its books.
The benefit would depend on the final law, eligibility and the extent to which the credits can be utilised.
What could it mean for the REIT market?
The combination of lower taxation at eligible SPVs, MAT credit utilisation and continued dividend exemption could improve the tax efficiency of some REIT and InvIT structures. If that results in higher post-tax cash flows, it could potentially support distributions, although it does not guarantee higher returns for investors.
Chanakya Chakravarti, Global Real Estate Investor and Capital Strategist, described the move as a step towards deepening the REIT ecosystem and attracting long-term institutional capital.
Sumit Singhania, Partner at Deloitte India, said the continued changes to REIT and InvIT taxation underline the strategic role of these structures in attracting long-term capital into capital-intensive sectors.
The broader policy objective is also reflected in the other provisions of the Bill. Ashok Rajani, MD and Partner at BCG, said the wider tax changes seek to reduce tax and regulatory frictions and improve India’s competitiveness as an investment destination.
For investors, however, the immediate takeaway is to wait for the final legislation and rules. The eventual impact will depend on which SPVs opt for the concessional regime, their MAT credit positions, the surcharge and the composition of distributions.
Vijay of JSA also noted that converting the earlier Ordinance into legislation could provide greater certainty and reduce the scope for future disputes.
