REIT, InvIT tax overhaul: SPV surcharge rise to 25% tempers distribution gains

“While the surcharge appears high on paper, the math still strongly favours the transition,” said Ankit Jain, Partner at Ved Jain and Associates. He expects a phased shift. “Mature SPVs with stranded MAT credits will shift immediately, directly boosting net distributable cash flows over the next few quarters.”

Rahul Jain, President & Head at Nuvama Wealth, was more cautious on the near term. Distribution per unit “could decline marginally in the near term if SPVs move to the new regime because of the higher surcharge,” he said. Over a longer horizon, he expects “better tax efficiency, possible use of accumulated MAT credits and stronger capital flows into the sector” to lift distributions.

Pallav Pradyumn Narang, Partner at CNK, said the surcharge “counterweighs the benefit as it could potentially lead to a higher tax outflow.” He suggested the government consider “doing away with the additional surcharge levy or perhaps a lower rate of surcharge increase.”

The bill separates two decisions that were previously linked. An SPV’s choice of tax regime no longer dictates the tax treatment of the dividend the unitholder receives. Preeti Chheda, CFO of Mindspace REIT and an Executive Committee Member of the Indian REITs Association, said the reform “allows REITs to transition to the new corporate tax regime while maintaining the existing tax treatment of distributions in the hands of unitholders.” That continuity, she said, is key to preserving the instrument’s structure and attractiveness.

The changes take effect with the passage of the Finance Bill. No date has been set for a floor vote in the Rajya Sabha.