In a significant move for Indian taxpayers, Finance Minister Nirmala Sitharaman has introduced the Taxation Laws (Amendment) Bill, 2025, aimed at providing crucial tax relief for subscribers of the newly launched Unified Pension Scheme (UPS). The bill, presented in the Lok Sabha on Monday, August 11, 2025, extends the same tax exemptions and deductions available under the New Pension Scheme (NPS) to the UPS, which officially came into effect on April 1, 2025.
Here’s a breakdown of the key provisions:
Tax Benefits for the Unified Pension Scheme (UPS)
The new legislation amends the Income-tax Act, 1961, to grant direct benefits to UPS subscribers:
- Tax-Exempt Corpus: The bill introduces new clauses to Section 10, making up to 60% of the individual’s pension corpus tax-free upon superannuation, voluntary retirement, or retirement.
- Lumpsum Exemption: Any lumpsum payment received under the scheme, as specified in a government notification dated January 24, 2025, will also be exempt from tax.
- Tax on Withdrawals: An amendment to Section 80CCD clarifies that any amount received by an individual or their nominee on retirement will be considered taxable income in the year it is received.
Other Important Amendments in the Bill
Beyond pension reforms, the bill includes two other notable changes:
- International Investment: The definition of a “specified person” under Section 10(23FE) has been expanded to include the Public Investment Fund of the Government of the Kingdom of Saudi Arabia and its wholly-owned subsidiaries. This change, stemming from a new agreement between India and Saudi Arabia, will provide these entities with specific tax benefits on their investments in India.
- Block Assessment Rules: The bill also amends the Finance Act, 2025, to refine the rules for block assessments, particularly in cases involving tax searches. This is intended to provide greater clarity on how pending assessments are to be handled.