REIT, InvIT unitholders can gain from new tax regime

The Lok Sabha recently approved the Taxation and Other Laws (Amendment) Bill, 2026, which includes a significant amendment regarding the tax laws of business trusts. This amendment has implications for individual investors who hold REITs, InvITs, and REIT unitholders.

Under the old tax regime, dividends were tax-exempt only if the trust had opted for the old tax regime. However, with the new tax regime, dividends are tax-exempt for REITs, InvITs, and REIT unitholders. This change results in a drop in the maximum effective tax rate from 34.94% under the old regime to 28.60% under the new regime.

Experts suggest that the real opportunity lies in the potential for greater distributable surplus for REIT and InvIT investors. If a trust chooses to operate under the new tax regime, it can have more distributable cash for reinvestment or distribution to unitholders. However, switching to the new tax regime is not a simple decision, as each REIT and InvIT trust must assess its specific circumstances and benefits.

One factor to consider is the 25% surcharge that comes with opting for the new tax regime. Despite this additional cost, the potential benefits of the lower tax rate could outweigh the expense for many trusts and their unitholders.

For REIT unitholders, the new tax regime offers several benefits. Firstly, dividends will be tax-exempt, providing a tax-free income stream. Secondly, the trust may have more distributable cash for reinvestment or distribution, potentially resulting in higher returns for unitholders. Lastly, the trust may be able to utilize accumulated Minimum Alternate Tax (MAT) credits, further enhancing cash-flow efficiency and distribution potential.