The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 (TOLA), which changes how dividends from Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are taxed. The bill declares the dividend component tax‑free, but experts caution that not all parts of a distribution become exempt.
A single payout from a REIT or InvIT can contain up to four parts: interest, dividend, rental income, and repayment of capital. Each part is treated differently under the Income Tax Act. Most investors list the whole payout as one line in their ITR, which is often incorrect.
Himank Singla, Partner at SBHS & Associates, explains that interest is taxed at the investor’s slab rate with a 10% TDS for residents. Dividend may be exempt or taxable depending on the law, rental income is usually exempt, and capital repayment is not income but lowers the cost basis, leading to higher capital gains when units are sold.
Previously, if the Special Purpose Vehicle (SPV) behind a REIT or InvIT chose the concessional corporate tax regime (Section 115BAA), the dividend could lose its exemption. The new bill removes this inconsistency, making the dividend exemption regime‑neutral from 1 April 2026.
Amit Shetty, CEO of Embassy REIT, says the change lets REIT SPVs use the Concessional Tax Regime and accumulated MAT credits while keeping dividends tax‑free for unitholders, preserving the model’s tax neutrality.
The amendment also raises the surcharge on SPVs that opt for the concessional regime from 10% to 25%. Singla notes that this protects investors while shifting the extra cost to the SPV.
Only the dividend component is affected; interest, rental income, and other parts keep their existing tax treatments. Investors should always review the distribution statement (Form 64B) before filing returns.
Capital gains on REIT/InvIT units are taxed at 12.5% for long‑term holdings (over one year) and at 20% for short‑term holdings. The Rs 1.25 lakh long‑term exemption does not apply in FY 2025‑26 but will be available from FY 2026‑27 after Finance Act amendments.
The market data shows that five listed REITs paid more than Rs 2,566 crore to 425,000 unitholders in Q3 2026. For FY 2025‑26, cumulative distributions exceeded Rs 8,900 crore, and total distributions since 2019 have crossed Rs 31,700 crore. The Indian REIT market’s gross asset value is over Rs 2.72 lakh crore, covering 187 million square feet of Grade‑A office and retail space.
India currently lists six REITs: Brookfield India Real Estate Trust, Embassy Office Parks REIT, Knowledge Realty Trust, Mindspace Business Parks REIT, Nexus Select Trust, and Bagmane REIT, which launched in May 2026. The key takeaway is that while dividends are now exempt, each distribution must still be dissected into its components before filing taxes.