REIT, InvIT tax overhaul gains tempered by higher SPV surcharge

The Lok Sabha has passed a taxation bill allowing special purpose vehicles (SPVs) of REITs and InvITs to opt for the concessional corporate tax regime, while making dividend income tax-free for unitholders. However, the surcharge on SPVs has been raised to 25 per cent from 10 per cent, tempering the benefit. Experts said the change reduces structuring friction but the higher surcharge could offset gains.

Kunal Savani of Cyril Amarchand Mangaldas said the surcharge is a revenue-balancing measure. Rahul Jain of Nuvama Wealth noted distributions per unit could decline in the near term. Pallav Pradyumn Narang of CNK called for a lower surcharge rate. Despite the higher surcharge, the effective tax rate under the new regime is about 28.60 per cent, compared with 34.94 per cent under the old framework.

Industry bodies and experts have urged the government to reconsider the surcharge hike, while some analysts expect a phased migration of SPVs to the new regime as it still offers tax advantages.