Indian Real Estate Investment Trusts (REITs) could receive greater tax flexibility under the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to the taxation of special purpose vehicles (SPVs) held by REITs.

The proposed provisions would allow eligible REIT SPVs to opt for the Concessional Tax Regime (CTR) while retaining the existing tax-exempt treatment of dividends distributed to REIT unitholders. The changes could reduce tax outgo at the SPV level and improve the amount of cash available for distribution.

Concessional Tax Regime for REIT SPVs

Under the proposed framework, REIT SPVs choosing the concessional corporate tax regime would also be exempt from Minimum Alternate Tax (MAT) going forward. The Bill further provides for the utilisation of accumulated MAT credits, subject to the conditions and provisions in the final legislation.

This could have an impact on REITs that have accumulated MAT credits. Instead of remaining largely unused accounting balances, eligible credits could potentially reduce future cash tax payments when the relevant SPVs move to the concessional regime.

The proposed changes are therefore expected to provide REIT structures with greater flexibility in managing their tax positions while maintaining the existing treatment of distributions received by investors.

Potential Impact on Distributable Cash Flow

One of the key implications could be an improvement in distributable cash flows. Lower cash taxes at the SPV level could leave more funds available for distribution to REIT unitholders, subject to the applicable conditions.

For listed REITs, cash flow generation is an important consideration because investors participate in income-generating commercial real estate through REIT units.

The proposed provisions could also provide greater clarity for REIT sponsors and SPVs considering a transition to the concessional corporate tax regime.

MAT Credits Could Provide Additional Benefit

The MAT credit provision could be particularly relevant for REITs with significant accumulated credits.

For Embassy REIT, CEO Amit Shetty said the proposed provisions could potentially restore the economic value of approximately ₹592 crore of accumulated MAT credits that had previously been written off in its books.

The ability to use such credits could reduce future cash tax payments for eligible SPVs, depending on the final provisions and compliance requirements.

Bill Awaits Further Approval

The Taxation and Other Laws (Amendment) Bill, 2026, has been cleared by the Lok Sabha and will now require approval from the Rajya Sabha, followed by the President’s assent, before the proposed provisions take effect.

The changes come as REITs continue to provide investors with access to income-generating commercial real estate through listed investment vehicles. For property owners and institutional investors, the proposed tax flexibility could support the continued use of REIT structures for raising and deploying long-term capital.

If enacted in the proposed form, the changes could provide REIT SPVs with more options for tax planning while preserving the existing tax treatment of dividends for unitholders.