New taxation bill restores dividend tax relief for REIT, InvIT investors despite corporate tax shift; check details

Investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) may continue to receive tax-free dividend income even as underlying operating companies migrate to the new corporate tax regime, with the Taxation and Other Laws (Amendment) Bill, 2026 proposing to restore the exemption that was at risk of being lost.

According to sources in the Finance Ministry, the proposed amendment is aimed at protecting retail investors while preserving the attractiveness of business trusts as investment vehicles for India's fast-growing real estate and infrastructure sectors.

Currently, business trusts distribute income earned from special purpose vehicles (SPVs) that own and operate real estate or infrastructure assets. Under the existing tax framework, dividend income received by investors remains exempt only if the SPV continues under the older corporate tax regime.

However, as more companies have shifted to the new, lower corporate tax regime introduced in recent years, investors faced the possibility of losing this exemption despite no change in the underlying investment.

Investors benefit to continue

Finance Ministry sources said the proposed Bill addresses this issue by restoring the dividend tax exemption for investors irrespective of the tax regime chosen by the operating company.

MUST READ: Edelweiss Nifty REITs & Realty Index Fund: This won't get equity tax benefits -- here's how gains will be taxed

To ensure the measure remains revenue neutral, the government proposes to levy a modest additional tax at the SPV level rather than taxing investors directly. According to the sources, this approach preserves post-tax returns for investors while maintaining overall tax collections.

The proposal is expected to provide greater certainty to retail as well as institutional investors, particularly as REITs and InvITs continue to attract growing participation from individuals seeking regular income-generating assets.

Boost for real estate and infrastructure

Business trusts have become an increasingly important financing avenue for commercial real estate, office parks, warehouses, highways, power transmission assets and other infrastructure projects.

Finance Ministry sources said restoring tax certainty for investors is expected to strengthen confidence in these investment structures and provide an additional boost to long-term capital flows into sectors that require significant patient capital.

The proposal also removes a potential tax distortion that could have influenced corporate decisions on whether to migrate to the new tax regime.

Without the amendment, companies may have faced pressure to remain under the older regime solely to preserve tax-efficient dividend distributions for REIT and InvIT investors.

ALSO READ: ITR filing 2026: Invested in REITs or InvITs? Here's how to report the income correctly while filing your tax returns

Part of a broader investment push

The REIT and InvIT proposal forms part of the government's broader effort to make India's tax framework more predictable for domestic and overseas investors.

The Taxation and Other Laws (Amendment) Bill, 2026 groups its reforms under three themes—attracting foreign capital, strengthening Make in India and improving ease of doing business.

According to Finance Ministry sources, the common objective is to reduce uncertainty, simplify compliance and provide long-term policy stability across sectors.

Besides the proposed relief for business trusts, the Bill seeks to simplify tax rules for overseas fund managers, ease compliance requirements for foreign cloud companies operating Indian data centres, extend tax certainty for electronics manufacturing investments and promote India as a global hub for rough diamond trading.

If enacted, the changes are expected to reinforce the appeal of REITs and InvITs for income-focused investors while ensuring that the transition of operating companies to the new corporate tax regime does not inadvertently erode investor returns.

MUST READ: India's first REIT-based mutual fund: Should investors consider the Edelweiss Nifty REITs & Realty Index Fund?