REITs may see greater tax flexibility, improved cash flow visibility under new tax amendments

New Delhi [India], August 11 (ANI): Real Estate Investment Trusts (REITs) and their unit holders could benefit from greater tax flexibility, improved capital allocation and enhanced cash-flow visibility following amendments proposed under the Taxation and Other Laws (Amendment) Bill, 2026, passed by both Houses of Parliament.

A key proposal in the Bill seeks to remove the restriction on dividend exemption for a unit holder of a business trust where the special purpose vehicle (SPV) has opted for the new tax regime.

The amendment proposes the omission of a provision that currently restricts exemption on dividend income received by a unit holder to the extent it represents dividend received or receivable by a business trust from its SPV, where the SPV has exercised the option to move to the new tax regime.

The amendments are aimed at providing greater tax certainty and easing the framework for businesses. The Bill's Statement of Objects and Reasons states that the proposed changes are intended to "provide ease of doing business and tax certainty".

The proposed changes assume significance for REITs as the sector continues to evolve as an important channel for institutional investment into India's real estate market.

Arjun Sharma, Vice Chairman, Nexus Select Trust, welcomed the government's continued efforts to strengthen the REIT framework, describing the proposed measures as a constructive step towards building a deeper and more mature REIT ecosystem.

"We welcome the Government's continued efforts to strengthen and evolve the REIT framework in India," Sharma said, adding that a stable and progressive policy environment would be critical to encouraging more asset owners to consider the REIT route.

He said REITs have the potential to play a larger role in India's real estate and capital markets by bringing income-generating assets into a transparent and professionally governed structure. A wider and more diversified REIT universe, he added, could provide investors with greater choice while enabling asset owners to unlock value from mature assets and recycle capital into new opportunities.

From a financial perspective, the proposed changes could also provide REITs with greater flexibility in managing their tax positions, particularly through more efficient utilisation of accumulated Minimum Alternate Tax (MAT) credits.

Rajesh Deo, Chief Financial Officer, Nexus Select Trust, said the proposed changes could have a "direct and tangible impact on the cash flows available within the REIT structure".

According to Deo, unlocking capital currently tied up in tax credits could improve the predictability and efficiency of cash flows and provide REIT managers with greater flexibility in capital deployment, including distributions, debt management, asset enhancement and growth opportunities.

"The benefit, therefore, is not limited to a lower tax outgo, it is about giving REITs greater flexibility to optimise capital allocation," Deo said.

For unitholders, greater efficiency at the SPV level could strengthen the sustainability of cash flows available for distribution, which remains a key consideration in the REIT investment proposition.

At the same time, the Bill proposes an additional surcharge of 15 per cent on an SPV where the new tax regime is opted for, potentially increasing the tax cost at the SPV level.

The amendments form part of the government's broader effort to respond to evolving economic conditions while providing greater certainty in the tax framework. For REITs, industry participants see the proposed changes as an important step towards improving financial efficiency and supporting the continued institutionalisation of India's real estate market. (ANI)

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