REIT and InvIT Investors May Gain if Trusts Opt for New Income Tax Regime, Effective Tax Rate Drops to 28.60%

New Delhi: Investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) may see improved post-tax returns if these investment vehicles choose to migrate to the new income tax regime, thanks to a lower effective tax burden on distributed income.

According to tax experts, the maximum effective tax rate applicable in certain cases could reduce from 34.94% under the old tax regime to 28.60% under the new regime. The reduction is expected to benefit investors by increasing the amount of income available for distribution after taxes.

The new tax regime offers lower tax rates for eligible entities that opt for the revised framework while foregoing certain exemptions and deductions available under the old regime. For REITs and InvITs, the decision to switch would depend on their overall tax position, financial structure and long-term distribution strategy.

REITs and InvITs are investment vehicles that allow individuals to invest in income-generating real estate and infrastructure assets without directly owning them. These trusts typically distribute a significant portion of their earnings to investors, making taxation an important factor in determining overall returns.

Tax professionals note that if a trust opts for the new regime and qualifies for the lower effective tax rate, investors could receive higher net distributions, particularly in cases where the tax savings are passed on through increased payouts.

However, experts caution that the decision to migrate should not be based solely on the lower headline tax rate. Trusts need to carefully evaluate the loss of available exemptions, deductions and incentives under the old regime before making a final decision.

Financial advisers also recommend that investors understand the tax treatment of different components of REIT and InvIT distributions, such as dividends, interest income and capital repayments, as each may be taxed differently under the Income Tax Act.

The potential tax advantage reflects the government's broader effort to encourage adoption of the new tax regime by offering lower rates in exchange for a simplified taxation framework. As more trusts evaluate the revised provisions, investors are expected to closely monitor whether fund managers opt for the new regime.

Market participants believe that any shift by major REITs or InvITs could influence investor sentiment, particularly among individuals seeking stable and tax-efficient income from listed investment trusts.