Income Tax Bill 2025: The Lok Sabha passed the Income Tax (No. 2) Bill, 2025 on Monday, August 11. This bill is a big step towards changing the nearly 60-year-old Income Tax Act (Income-Tax Act, 1961). It was introduced by Finance Minister Nirmala Sitharaman. Most of the 285 recommendations of the Parliamentary Select Committee have been included in it.
The bill which was introduced earlier this year was withdrawn by the government. Now this bill will go to Rajya Sabha. Its purpose is to simplify the tax rules, reduce disputes and modernize the process. In this, many tax reliefs have been given to pensioners, investors of National Pension System (NPS) and Unified Pension Scheme (UPS).
Income Tax Bill 2025: Full tax exemption on commuted pension
Commuted pension means that the employee takes a part of his pension first as a lump sum amount. Now if this amount comes from an approved superannuation fund or a recognized pension scheme, then that amount is completely tax exempt.
This rule applies to both government and private sector employees, provided their pension plan is government-recognized. This means that you will not have to pay any income tax on the amount received as commuted pension at the time of retirement.
However, this exemption applies only to the lump sum amount received during commutation. The rest of the monthly pension is taxable under normal tax rules. This facility helps employees save tax and is financially helpful after retirement.
Income Tax Bill 2025: New rules are clear on UPS and NPS
The commuted pension portion received in the Unified Pension Scheme (UPS) will be completely tax free. Whereas, the old rules will apply in NPS i.e. on closing or exiting the scheme, 60% of the total deposit amount can be withdrawn tax free.
Income Tax Bill 2025 : Retirement Benefit Account
There is a provision for Retirement Benefit Account in the new bill. These accounts will run approved funds and withdrawal from them will be tax free if the prescribed conditions are fulfilled at the time of retirement. Its purpose is to promote retirement savings in a proper manner.
Discount on family pension continues
The exemption that was already available on family pension will continue. In this, one-third of the pension or ₹ 15,000, whichever is less, will be deducted from the taxable income. This facility will be applicable on the pension received by the spouse or dependents of the deceased employee.
Rules for partial withdrawal fixed
The tax rules for partial withdrawal from pension schemes before retirement have now been clarified, which will reduce disputes and increase transparency.
According to the Finance Ministry, the purpose of these changes is to implement uniform tax rules on different pension sources, clarify the law and ensure financial security after retirement.
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