TAX AMENDMENT BILL 2026

The Lok Sabha has passed the Taxation & Other Laws (Amendment) Bill, 2026 (‘Amendment Bill’). The said Amendment Bill replaces the Income-tax (Amendment) Ordinance, 2026 which was earlier passed on 5 June 2026 and also proposes other amendments to the Income-tax Act, 2025 (‘the Act’), the most notable amendment being in respect of taxation of unitholders and SPVs of business trusts.

Existing provisions - Taxation of dividend income distributed by business trusts

•     Currently, under the provisions of the Act, dividend income received by a business trust i.e., an Infrastructure Investment Trust (‘InvIT’) or a Real Estate Investment Trust (‘REIT’) from its investment in Special Purpose Vehicle (‘SPV’) is exempt from tax at the level of the business trust. However, the taxability of such dividend income distributed by the business trust to its unitholders is dependent upon the tax regime opted by the underlying SPV as under:

 

i.         Where the SPV has not opted for the concessional tax regime under section 200 of the Act - Dividend income is exempt in the hands of the unitholders

ii.       Where the SPV has opted for the concessional tax regime under section 200 the Act (viz. 22% tax rate) - Dividend income is taxable in the hands of the unitholders as such.

 

Proposed relief for unitholders

 

•     The Taxation and Other Laws (Amendment) Bill, 2026 proposes that dividend income distributed by a business trust to its unitholders would be exempt from tax irrespective of whether the underlying SPV has opted for the concessional tax regime under section 200 of the Act.

 

•     The proposed amendment seeks to simplify and rationalize the taxation of business trust distributions by providing a uniform tax exemption for dividend income received by unitholders, thereby eliminating the distinction based on the tax regime adopted by the underlying SPV.

 

Enhanced Surcharge Rate for SPVs opting for concessional tax regime

 

•     To neutralize the revenue impact, the Amendment Bill seeks to levy an additional surcharge of 15% on SPVs of business trusts that have opted for the concessional tax regime under section 200 or section 201 of the Act, as compared to the currently applicable 10% surcharge.

 

•     Below table summarises the impact on the effective tax rate for SPVs of business trusts as a result of the amendment:

 

SPV of Business Trust	Pre-Amendment	Post-Amendment
Opted for concessional tax regime under section 200 of the Act	25.17%   (Base rate 22% + Surcharge 10%+ Cess 4%)	28.6%   (Base rate 22% + Surcharge 25%+ Cess 4%)
Opted for concessional tax regime under section 201 of the Act	17.16%   (Base rate 15% + Surcharge 10%+ Cess 4%)	19.5%   (Base rate 15% + Surcharge 25%+ Cess 4%)
Not opted for concessional tax regime	34.944%   (Base rate 30% + Surcharge 12%+ Cess 4%)	34.944% No change proposed

 

Rationale for the amendments relating to taxation of unitholders and SPVs of business trusts

 

•     Following the Union Finance Minister's announcement that no fresh MAT credit would accrue from FY 2026-27 onwards and that MAT would effectively become a final tax liability, companies remaining under the old tax regime would continue to be subject to MAT but would no longer generate MAT credit for future set-off. At the same time, companies migrating to the concessional tax regime from FY 2026-27 onwards were permitted to utilize MAT credit accumulated up to 31 March 2026.

 

•     Given that many SPVs, particularly in infrastructure and real estate sectors, possess substantial MAT credit balances arising from accelerated depreciation and other timing differences, the concessional tax regime became increasingly attractive.

 

•     However, dividend income distributed by a business trust to its unitholders was exempt only if the underlying SPV remained under the regular old tax regime. Where the SPV opted for the concessional regime under section 200 (erstwhile section 115BAA), such dividend became taxable in unitholders' hands.

 

•     Thus, opting for the concessional regime by the SPV would result in the loss of dividend tax exemption for unitholders, thereby creating a conflict between preserving SPV-level tax benefits and maintaining investor-level tax efficiency.

 

•     The Amendment Bill resolves this conflict by proposing amendments to make dividend income exempt in unitholders' hands regardless of the SPV's tax regime.

 

•     Further, to offset the resulting loss arising to the Government, the Bill proposes raising the surcharge on SPVs under the concessional regime from 10% to 25%, effectively shifting the tax cost from investors to the SPVs.

 

Other Amendments proposed by the Amendment Bill

 

•     Exemption in respect of income of foreign company arising on account of providing capital goods, equipment or tooling equipment to a resident contract manufacturer producing electronic goods

-         The exemption has been extended from up to tax year 2030-31 to until tax year 2040-41

-         The exemption shall be available in respect of specified electronic goods being mobile phones, laptops, all-in-one personal computers and tablets, servers and ultra small form factor (USFF) and sub-assemblies, hearables, wearables and accessories to the above finished goods.

 

•     New exemption proposed for foreign company on income accruing on account of storage of components in a warehouse in a custom bonded area for provided them to a contract manufacturer to be used for manufacturing of above specified electronic goods.

 

•     Exemption in respect of income of foreign company arising on account of procuring data centre services from specified data centre owned and operated by Indian company

-         The condition for notification of foreign company by Central Government to be eligible for the exemption has been deleted

-         The condition for notification of the specified data centre by Central Government (Ministry of Electronics and Information Technology) has also been deleted

-         The data centre could be owned or be operated on lease basis by the Indian

company

 

•     New exemption proposed for foreign mining company engaged in the business of selling rough diamonds or a foreign company functioning as a sight holder, broker, aggregator or a tender and auction entity for such business for a period of 15 years viz. up to 31 March 2041.

 

•     Additionally, the conditions for safe harbour for eligible investment funds from constituting business connection in India where the fund management activity is carried out through an eligible fund manager in India have been relaxed.

 

Remarks

 

•     The amendments in respect of business trusts shall ensure that SPVs of business trusts will be able to move to the concessional tax regime and preserve their MAT credit without unitholders losing the dividend exemption.

 

•     The loss to the Revenue will be absorbed at the SPV level via higher surcharge rather than passed on to investors.

 

•     Further, since dividend income distributed by a business trust would stand exempt under domestic law itself, the need to rely on tax treaty protection would no longer arise. Consequently, issues surrounding a non-resident unitholder's eligibility to claim treaty benefits including satisfaction of conditions such as beneficial ownership and limitation of benefits as well as questions relating to the characterization of such income for treaty purposes, would become largely academic once the proposed amendment is enacted.

 

•     The proposed amendments in respect of taxation of unitholders of business trusts may especially be relevant for HNIs and family offices considering that many of them have exposures to business trusts as part of their portfolio.

 

•     The other amendments proposed are intended to further incentive the emerging sectors and provide more certainty and longevity from tax perspective,