Lok Sabha passes tax amendment Bill: REIT, InvIT investors to get dividend tax relief
Aug 06, 2026
Bill exempts dividends from SPVs under the new tax regime in the hands of unit holders, raises surcharge on eligible SPVs to keep the measure revenue neutral, and eases safe harbour norms for investment funds.
The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026. The Bill amends the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007.
For business trusts such as REITs and InvITs, the legislation removes an existing restriction that denied tax exemption on dividends received by unit holders where the special purpose vehicle (SPV) had opted for the new/concessional corporate tax regime of 25.17 percent, while introducing a corresponding levy at the SPV level to keep the measure revenue neutral.
Currently, dividends distributed by SPVs opting for the new tax regime (other than special regime for new manufacturing companies) and routed through Business Trusts were taxable in the hands of investors. Depending on the category of investor and jurisdiction, the effective tax incidence could range from 10 percent to 36 percent.
The proposed amendment introduces uniformity by exempting such dividends in the hands of unit holders irrespective of whether the underlying SPV operates under the old or new concessional corporate tax regime. To maintain overall tax neutrality, the Bill proposes a corresponding increase in surcharge at the SPV level which has opted for new tax regime (including for new manufacturing companies).
Enhancement in the surcharge rate for SPVs that have opted for CTR. Under the proposed amendments are:
This change is significant because it aligns tax treatment across different corporate tax regimes, restores erstwhile position which prevailed during dividend distribution tax regime and removes an important friction point for investors. “The proposal has the potential to improve valuations of Business Trust structures and encourage fresh capital inflows into REITs and InvITs. Given the growing importance of these vehicles in financing commercial real estate, logistics parks, infrastructure assets and emerging sectors such as data centres, the change could support greater participation from both domestic and international investors. However, a consequential amendment in withholding provision appears to have been inadvertently missed out and must be addressed to avoid withholding on exempt dividend income,” said Ganesh Raj Partner and Tax Policy Leader, EY India.
Separately, the bill proposed relaxation of the safe harbour conditions is a significant step towards enhancing India's attractiveness as a fund management jurisdiction. Of the original 13 conditions applicable to qualify as an eligible investment fund, only 5 remain, with key relaxations that include removal of investor diversification requirements, investment concentration norms, minimum corpus and remuneration thresholds, and restrictions on investments in associate entities.
“These changes should give the much-needed flexibility to fund managers and significantly enhance India’s competitiveness as a fund management destination for both India-focused and global investment strategies”, said Sameer Gupta, National Tax Leader, EY India.