New Income Tax Bill 2025: A Win for All Savers
Thank you for reading this post, don't forget to subscribe!The newly revised Income Tax Bill 2025 is set to equalize tax treatment on commuted pensions, a move hailed as a victory for all retirement savers. Under the new rules, the entire amount of a commuted pension from approved funds, such as the LIC Pension Fund, will now be eligible for a full tax deduction.
What’s Changed?
Previously, the tax law created an unfair divide. Salaried employees enjoyed a full tax exemption on their commuted pensions. In contrast, non-employees—a category that includes private sector workers without a company pension plan and independent professionals—were taxed at their standard income rates. This disparity meant individuals who had independently invested in approved pension schemes were at a disadvantage.
Archit Gupta, Founder & CEO of ClearTax, highlighted this issue, stating, “Under the previous Income-tax Bill, commuted pensions for non-salaried individuals were taxed at regular slab rates, while salaried employees benefited from full tax exemption. This created an unequal tax burden…”
The New, Fairer Approach
The Income Tax Bill 2025 rectifies this inequity by extending the same tax relief to everyone, regardless of their employment status. Now, anyone receiving a commuted pension from an approved scheme will receive a full tax exemption. This change ensures that a private sector employee or an independent contractor who has invested in a pension fund will get the same tax benefits as a salaried employee.
This critical change was recommended by the Lok Sabha Select Committee, which aimed to address the lack of explicit deductions for non-employees. The committee’s recommendation to grant these individuals a similar deduction to what is offered to employees has now been incorporated into the bill.
Who are “Non-Employees”?
This group includes a wide range of individuals, such as:
- Private sector workers whose employers do not offer a pension plan but who have made independent investments.
- Independent contractors, nominees, or legal heirs who receive a commuted pension without a direct employer-employee relationship with the pension provider.
By eliminating the tax burden on these individuals’ commuted pensions, the new bill encourages more people to invest in long-term savings and provides a more equitable tax system for all who are planning for their retirement.
