Income Tax Bill 2025: Relief for UPS and NPS subscribers along with pensioners in the new bill, will get tax benefits
Income Tax Bill 2025: Big relief has been given to pensioners, NPS and UPS subscribers in the Income Tax Bill 2025. Also, provision of retirement benefit account has been added. Know how to get its benefit.
Income Tax Bill 2025: The Lok Sabha on Monday, August 11 passed the Income Tax (No. 2) Bill, 2025. 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The bill which was introduced earlier this year was withdrawn by the government.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 the Rajya Sabha. Its purpose is to simplify 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).
Full tax exemption on commuted pension
Commuted pension means that the employee takes a part of his pension first in the form of 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 scheme 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 that is received during commutation. The rest of the monthly pension has to be taxed under the normal tax rules. This facility helps employees save tax and proves to be financially helpful after retirement.
New rules clear on UPS and NPS
The part of commuted pension received in Unified Pension Scheme (UPS) will be completely tax free. At the same time, the old rules will be applicable in NPS, that is, on closing the scheme or exiting, 60% of the total deposit amount can be withdrawn tax free.
Retirement Benefit Account
There is a provision of Retirement Benefit Account in the new bill. These accounts will run approved funds and withdrawal from them will be tax free if the conditions set at the time of retirement are fulfilled. Its purpose is to promote retirement savings in the right way.
Exemption on family pension continues
The exemption that was already being given 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 before retirement from the pension scheme have now been clarified, which will reduce disputes and increase transparency.
According to the Finance Ministry, the purpose of these changes is to apply uniform tax rules on different pension sources, clarify the law and ensure financial security after retirement.
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