1. The Pre-Amendment Position
Business trusts — Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) — and their unit holders are taxed under a pass-through framework built around Section 223 of the Income-tax Act, 2025 (corresponding to Section 115UA of the erstwhile 1961 Act), read with Schedule V (Table Serial Nos. 3, 4 and 5) of the ITA 2025, which mirror clauses (23FC), (23FCA) and (23FD) of Section 10 of the ITA 1961. Certain categories of income bypass the trust entirely and are taxed directly in the hands of unit holders; everything else is taxed once at the trust level and exempted when it is subsequently distributed.
Dividend received by a business trust from its Special Purpose Vehicle (SPV) sits in the first category. It is exempt in the trust’s hands under Schedule V (Table Sl. No. 3), and, when passed on to unit holders, exempt there too under Schedule V (Table Sl. No. 5). There is, however, a condition attached: clause (b) of Column D of that entry withdraws the unit holder’s exemption whenever the dividend traces back to an SPV that has opted for the concessional tax regime under Section 200 (corresponding to Section 115BAA of the 1961 Act).
The consequence is that a unit holder’s tax outcome hinges on a decision taken entirely by the SPV. Where the SPV stays on the regular corporate regime, the dividend reaches the unit holder tax-free. Where it elects the concessional regime under Section 200, that same dividend becomes taxable in the unit holder’s hands — a result driven by a choice the investor had no part in making.
2. What the Amendment Changes
TOLA 2026 responds with two connected changes:
2.1 Dividend Exemption No Longer Tied to the SPV’s Regime
With effect from 1 April 2026, TOLA omits clause (b) of Column D of Schedule V (Table Sl. No. 5) — the provision that had denied exemption to unit holders whenever the underlying SPV opted for the concessional regime under Section 200. Once that clause is gone, the exemption no longer depends on which regime the SPV has chosen.
In effect, dividend received by a business trust from an SPV, and distributed to unit holders, will now be exempt whether the SPV has stayed on the regular regime or migrated to the concessional one under Section 200. The distinction that once separated the two scenarios is removed.
Read the Full article on Mondaq: https://www.mondaq.com/india/tax-authorities/1831076/recent-tax-amendments-restoring-the-dividend-exemption-for-reit-and-invit-unit-holders
