The Taxation and Other Laws (Amendment) Act, 2026 (TOLA 2026) has changed the tax treatment of dividend income received by unitholders of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), collectively referred to as Business Trusts.
The amendment addresses the earlier tax disparity under which the exemption available to unitholders depended on the corporate tax regime selected by the underlying Special Purpose Vehicle (SPV). Under the earlier framework, dividend income could lose its exemption when the SPV opted for the concessional corporate tax regime.
TOLA 2026 removes this dependency by providing an unconditional exemption for qualifying dividend income in the hands of Business Trust unitholders, irrespective of whether the underlying SPV follows the regular or concessional tax regime. The Act received Presidential assent on 17 August 2026 and is generally effective from 1 April 2026.
However, the tax benefit at the unitholder level is accompanied by a higher surcharge for specified SPVs. The surcharge applicable to eligible REIT/InvIT SPVs under the concessional regime has increased from 10% to 25%. This raises the effective tax burden on such SPVs to approximately 28.6%, compared with around 25.17% under the earlier structure.
A separate issue remains regarding tax deducted at source (TDS). While the substantive amendment provides exemption to eligible dividend income in the hands of unitholders, the existing withholding mechanism has not been fully aligned with the new exemption framework. As a result, non-resident investors may still face TDS deductions and could need to file an income-tax return to claim a refund, depending on the applicable withholding provisions and their circumstances.
The amendment therefore provides greater certainty on the final taxability of REIT and InvIT dividend income, while leaving a practical compliance issue around withholding and refund claims for certain investors. Further alignment of the TDS provisions with the revised exemption regime could be required to eliminate this mismatch. CASansaar