The government has proposed restoring the tax exemption on dividend income for investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), even where the underlying special purpose vehicles (SPVs) shift to the newer, lower corporate tax regime, according to Finance Ministry sources. 
The proposal is contained in the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to address a tax anomaly that had put the dividend exemption for REIT and InvIT investors at risk. Under the existing framework, business trusts distribute income earned from SPVs that own and operate real estate or infrastructure assets, with dividend income remaining exempt in the hands of investors only if the SPV continues to operate under the older corporate tax regime. 
As a growing number of companies have migrated to the newer, concessional corporate tax regime introduced in recent years, investors in REITs and InvITs faced the prospect of losing the dividend tax exemption, despite no change in the nature of their underlying investment. According to Finance Ministry sources, the proposed amendment is designed to protect retail investors from this outcome while preserving the attractiveness of business trusts as investment vehicles for India's real estate and infrastructure sectors. 
Under the proposed changes, the dividend tax exemption for investors would apply irrespective of which corporate tax regime the underlying SPV has adopted. To keep the measure revenue-neutral, the government intends to levy an additional surcharge at the SPV level, rather than taxing investors directly on their dividend income. According to Finance Ministry sources, this approach is intended to preserve post-tax returns for investors while maintaining the government's overall tax collections from the sector. 
The proposal is expected to provide greater certainty for both retail and institutional investors, particularly as REITs and InvITs have attracted growing participation from individuals seeking regular income-generating assets. Business trusts have increasingly become an important financing route for commercial real estate, office parks, warehouses, highways, power transmission assets and other infrastructure projects in India. 
Finance Ministry sources said that restoring tax certainty for investors was expected to strengthen confidence in these investment structures and support long-term capital flows into sectors requiring sustained, patient investment. The proposed amendment is also intended to remove a potential distortion in corporate decision-making, since companies may otherwise have faced pressure to remain under the older tax regime purely to preserve tax-efficient dividend distributions for their REIT and InvIT investors. 
The REIT and InvIT-related proposal forms part of a broader set of reforms contained in the Taxation and Other Laws (Amendment) Bill, 2026, which groups its measures under three broad themes: attracting foreign capital, strengthening domestic manufacturing under the Make in India initiative, and improving ease of doing business. According to Finance Ministry sources, the overarching objective of the Bill is to reduce uncertainty, simplify compliance requirements and provide long-term policy stability across sectors. 
Beyond the proposed relief for business trusts, the Bill also seeks to simplify tax rules for overseas fund managers, ease compliance requirements for foreign companies operating cloud and data centre infrastructure in India, extend tax certainty for investments in electronics manufacturing, and support India's positioning as a global hub for rough diamond trading. 
If enacted in its current form, the changes are expected to reinforce the appeal of REITs and InvITs to income-focused investors, while ensuring that the migration of operating companies to the newer corporate tax regime does not inadvertently erode investor returns. The report did not specify the exact quantum of the proposed additional surcharge to be levied on SPVs, nor did it provide a timeline for when the Bill is expected to be tabled or passed by Parliament.