Proposed tax changes aim to enhance certainty for REIT and InvIT investors by confirming dividend exemption from the new corporate tax regime, though payouts will not be fully tax-free. The move could benefit high-income investors and optimise cash flows, but investors must stay vigilant on component-wise taxation.
India’s proposed tax changes for Real Estate Investment Trust and Infrastructure Investment Trust investors would ease the treatment of dividends, but they would not turn REIT or InvIT payouts into fully tax-free income. The key shift is that dividend distributions from the underlying special purpose vehicle would stay exempt for unit holders regardless of whether that vehicle uses the old or new corporate tax regime, removing a rule that can now make the same payout taxable depending on a decision investors do not control. Business Today said the change is aimed at improving certainty for unitholders while addressing an uneven feature of the current system.
The benefit would be most noticeable for investors in higher tax bands. CA Parag Jain, tax head at 1 Finance, told Business Today that a unit holder in the 30% bracket who received ₹75,000 as dividend from a REIT whose SPV had opted for the new regime would currently owe about ₹23,400 in tax, but that liability would fall to nil if the amendment becomes law. The article also noted that the proposal could improve the cash-flow position of REIT structures by allowing SPVs to make better use of accumulated Minimum Alternate Tax credits.
Even so, only one slice of the payout would receive the extra relief. REIT and InvIT distributions can include dividend, interest, rent and capital-related amounts, and each component is taxed differently. Under the proposal, the dividend element would gain the exemption, but interest would still be taxed at the investor’s slab rate, rental income would keep its existing treatment and capital gains on the sale of units would remain taxable. Business Today said that means investors need to look closely at the composition of each distribution, not just the headline yield.
Jain also warned that tax deducted at source would not vanish automatically, even if the dividend becomes exempt. Resident unit holders would still need to claim credit for any TDS when filing returns and seek refunds where appropriate. The article said investors should review trust notices and payout patterns over several years before making decisions, and it stressed that the relief is only a proposal for now, pending Presidential assent.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
