Infrastructure creation is central to India's economic policy. This, even as global capital flows have become more selective. India must mobilise long-term capital at scale, both domestic and global, through efficient financial structures.
India's listed business trusts have emerged as a credible bridge between long-duration savings and income-generating assets. They have also provided an effective route for monetisation of operational infra. India has 5 listed REITs and more than 24 listed InvITs with an aggregate market capitalisation of around ₹4 lakh cr. This growth has been built on clear design principles.
Distribution discipline Regulations require 90% of free cash flows be distributed from SPVs to the trust, and from trust to unit holders. This creates visibility of income and allows investors to treat these instruments as yield products.
Single-layer tax framework Dividends from SPVs outside the new corporate tax regime are exempt at both trust and unit holder levels, while interest, rental income and capital gains are taxed in a defined manner. This ensures that the same cash flow is not taxed multiple times as it moves through the structure.
Earlier inefficiencies, including dividend distribution tax at the SPV level, were removed to improve returns and enable scale. Predictable taxation supports predictable cash flows, and predictable cash flows attract long-term capital.
Budget 2026 restructured treatment of minimum alternate tax (MAT) credits. It links utilisation of accumulated MAT credit to a transition to the new corporate tax regime, caps annual utilisation, and discontinues further accumulation of MAT credit beyond April. For most companies, this is a transition decision. For SPVs within REIT and InvIT structures, it creates a structural constraint.
If SPVs move to the new corporate tax regime to utilise accumulated MAT credit, dividends distributed by these SPVs become taxable in the hands of unit holders under the framework. This reduces yields and weakens positioning of these instruments as stable income products. If SPVs remain outside the new regime to preserve dividend exemption, accumulated MAT credits may lapse, and future MAT liabilities may arise due to timing differences inherent in capital-intensive sectors.
The combined effect introduces uncertainty in distributable cash flows. This must be avoided. REITs and InvITs are now integral to India's infra financing strategy. Business trusts account for close to ₹10 lakh cr of assets under management and are expected to expand over the next few years. They attract long-horizon capital from pension funds, insurance companies, MFs and sovereign investors. They also enable monetisation by central and state public sector entities.
The objective to expand REIT formation by PSUs depends on maintaining stability of the underlying framework. Any change that affects yield predictability will increase the cost of capital and weaken investor participation. The issue is not the direction of reform but the design. India needs a financing architecture that supports scale, predictability and long-term participation.
Policy certainty is central to this. It lowers the cost of capital and enables deeper markets. Two design choices can address the issue.
Allow business trust SPVs to remain outside the new corporate tax regime, while retaining the ability to carry forward and utilise accumulated MAT credits. This preserves existing entitlements and avoids disruption to yields.
If transition to the new regime is required, retain the single-layer taxation principle by ensuring that dividend income remains exempt in the hands of unit holders. This aligns with the broader tax framework while maintaining competitiveness of these instruments.
India has taken a decade to build REITs and InvITs. The next phase will require expanding the asset pipeline, increasing domestic participation and using these structures to recycle capital at scale. India has the assets, investor interest and policy intent. Execution will depend on maintaining a stable and predictable framework.
