The effective corporation tax rate for these SPVs, experts said, will rise to 28.6 per cent from about 25.2 per cent, as proposed in the Taxation and Other Laws (Amendment) Bill, 2026, tabled by Union Finance Minister Nirmala Sitharaman in the Lok Sabha on Tuesday.
The Bill seeks to raise the surcharge on SPVs opting for the concessional corporation tax regime to 25 per cent from 10 per cent, while extending the dividend tax exemption to unit holders even if the SPV has migrated to the new regime. It also allows such SPVs to carry forward and utilise accumulated minimum alternate tax (MAT) credits after shifting to the new regime, bringing them in line with other companies.
Business trusts such as Reits and Invits pool capital from investors and invest it in income-generating real estate and infrastructure assets through operating companies, or SPVs. As mandatorily listed entities, Reits and Invits are required to distribute at least 90 per cent of their distributable cash flows to unitholders.
Under the current framework, dividends received by unitholders are exempt only if the SPV remains under the old tax regime. Once the SPV shifts to the new regime, the exemption is withdrawn. The Bill proposes to remove this distinction by extending the exemption regardless of the tax regime chosen by the SPV.
Shobhit Agarwal, chief executive officer at Anarock Capital, said the Bill is a positive step but leaves some gaps. “The higher 25 per cent surcharge on SPVs choosing the new regime under Riets and Invits remains a disincentive that partly offsets the restored dividend exemption. It would also help to have greater clarity on the taxation of interest and capital gains in the hands of unitholders.”
According to the Central Board of Direct Taxes’ FAQs (frequently asked questions), the proposed amendment follows MAT reforms introduced through the Finance Act, 2026, under which MAT became a final tax for companies remaining in the old regime, while accumulated MAT credits could be utilised only after migrating to the new regime. The changes were intended to encourage companies, including SPVs of business trusts, to move to the new regime. However, such a shift would have caused unitholders to lose the dividend exemption. To provide certainty, the Bill seeks to restore the exemption while proposing an additional 15 percentage-point surcharge on SPVs to offset the resulting revenue loss.
Finance Ministry officials said the measure is intended to ensure investors continue receiving tax-free dividends even as operating companies migrate to the simpler tax regime. To keep the proposal revenue-neutral, the additional levy has been imposed at the operating company level rather than on investors, a move the government said would protect small investors while further boosting investment in real estate and infrastructure.
“The proposal on business trusts is a welcome move. Dividends from SPVs under the new regime were taxable in the hands of investors at rates ranging from 10 per cent to 35 per cent, depending on the category of investor and jurisdiction. The proposal creates uniformity, and dividends declared by any SPV, whether under the old or new regime, will now be exempt in the hands of unitholders,” said Sameer Gupta, national tax leader at EY India.
Gupta said the amendment addresses a long-standing demand from investors and is likely to support higher valuations and increased domestic and foreign investment in Reits and Invits. “Overall, the exemption in the hands of investors is the preferred outcome and should completely offset the increase in surcharge at the SPV level,” he said.
Abheet Sachdeva, partner-M&A tax at Nangia Global, said the amendment also exposes an anomaly in the withholding tax framework. While dividend income is proposed to be exempt in the hands of unitholders, the Bill does not make a corresponding amendment to the tax deduction at source (TDS) provisions applicable to business trusts.
“In the absence of suitable amendments, non-resident unitholders may continue to face withholding tax on exempt dividend income and may be required to file tax returns in India solely to claim refunds of taxes withheld,” Sachdeva said, adding that the issue warrants clarification from the Revenue Department.
According to Bhairav Dalal, partner at Price Waterhouse & Co LLP, the changes preserve the single-level taxation framework while creating a pathway for SPVs to utilise accumulated MAT credits, similar to other domestic companies.
A senior industry executive in the Reit sector said the move is a significant positive for Reits and investors, as the government has accepted the industry’s long-pending demand to allow SPVs to carry forward and utilise accumulated MAT credits on par with other companies. “These reforms will enhance REIT distribution yields for investors, making the product more attractive,” the executive said.
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