Tax Amendment Bill to Benefit REITs, InvITs; SPV Shift to New Regime Seen as Gradual

The Taxation and Other Laws (Amendment) Bill, 2026, passed on Thursday, is set to bring significant changes for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The legislation amends the Income-tax Act, 2025, the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007.

A key provision makes dividends paid by Special Purpose Vehicles (SPVs) to REIT and InvIT investors tax-free, regardless of whether the SPV operates under the old or new tax regime. Previously, this exemption was only available to SPVs that remained in the old regime.

However, SPVs opting for the new tax regime will face a higher surcharge of 25 per cent, compared to the 10 per cent applicable to other companies. This trade-off is expected to influence decisions.

Many infrastructure SPVs have historically relied on tax benefits under Section 80-IA, paying little or no regular corporate tax during their holiday period. Instead, they paid Minimum Alternate Tax (MAT) and accumulated credits for future use.

From FY2026-27, SPVs staying in the old regime will pay MAT at a reduced rate of 14 per cent, but this will be their final tax liability. No new MAT credits can be accumulated after April 1, 2026. Existing credits can only be utilised after an SPV shifts to the new regime, and even then, only up to 25 per cent of that year's tax liability can be offset.

The transition is expected to be phased. SPVs still enjoying Section 80-IA benefits with small MAT credits are likely to stay in the old regime, as it remains more advantageous. Conversely, SPVs whose tax holiday has ended or those with large MAT credits are expected to move to the new regime, which offers a lower effective tax burden and allows partial use of accumulated credits.

The number of SPVs shifting is likely to increase over the coming quarters, potentially raising costs for tax-exempt institutional investors over time.