A recent amendment by Lok Sabha gave relief to real estate investment trusts (REITs) and infrastructure investment trust (InvITs) by giving exemption to tax levied on dividends paid by these structures under the new tax regime. Until now, this exemption was only provided to trusts which opted for the older tax regime. At the same time, the amendment also increased the surcharge for special purpose vehicles (SPVs) of these trusts.
Boost to Investor Sentiment
At a time when both the structures are seeing increased investor interest for benefits of diversification and comparatively lower risk, experts believe the move is expected to increase inflows. Karan Shah, head – fixed income and real assets, Neo Wealth said that the timing of this exemption ahead of inclusion of REITs within Nifty equity indices in September 2026 gives the combined benefit of tax certainty and improved market representation for investors.
He believes this could broaden the investor base, deepen institutional participation and attract incremental passive control in these vehicles, supporting their presence in investor portfolios for long-term wealth creation. Vaibhav Porwal, co-founder, Dezerv said that the move fixes a structural quirk where investors had to pay tax for the choice of tax regime by the trust despite not having any say in the decision.
He sees the exemption as a restoration of tax neutrality, a foundational block of the pass-through structure. He expects the tax relief to have a positive but measured effect on inflows adding that while this increases the predictability of post-tax cash flows, yield, interest rate cycle and quality of underlying assets also remain key factors for investors. He expects the relief to have the biggest impact on investors still sitting on the fence due to tax liabilities and advised investors to not make the mistake of treating the entire payout from these structures as tax-free as other payouts from these structures, besides dividend, continue to be taxed as before.
Key Beneficiaries
Shah said that the reform is likely to benefit retail investors, HNIs, UHNIs, family offices, institutional investors and corporate treasuries. Meanwhile, Porwal expects REIT investors to benefit more than InvIT investors due to a higher dividend payout in the former. He also expects investors in higher tax brackets who had to pay 36% tax on dividends to benefit more than investors in lower tax slabs.
Both experts also noted that besides the benefit to investors, the reform will give better flexibilities to REITs and InvITs to improve their tax structures and utilize accumulated tax credits without adversely impacting the unitholders. Shah added that while the higher tax rate applicable for some InvIT structures within the new tax regime can marginally reduce distributable cash flows and NAVs, the overall post-tax cash flows for the investors are likely to improve.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
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