The government unveiled the updated Income Tax Bill 2025 in Parliament, introducing several reforms aimed at simplifying tax compliance and extending targeted relief to taxpayers. Notable highlights include full deduction for commuted pension payouts, extended standard deduction benefits, clarified treatment of rental income, and incentives for retirement savings—all within a streamlined legislative framework.
Breakdown of Key Provisions
1. Full Tax Deduction for Commuted Pension
The revised bill explicitly allows taxpayers to claim the entire commuted (lump-sum) pension tax-free, provided it’s received from eligible pension funds listed under Schedule VII—such as LIC Pension Fund and similar institutional schemes. This removes prior ambiguity and delivers much-needed relief to retirees relying on lump-sum payouts.
2. Faceless Digital-First Tax Administration
Continuing the digital transition, the bill reduces the number of sections from 819 to 536 and re-organizes content into 23 chapters. It enshrines faceless, online tax assessments to minimize human interface, increase transparency, and streamline tax processes.
3. Enhanced Standard Deduction and Property-Related Relief
A standard deduction of 30% of the annual value for owner-occupied residential property has been reaffirmed, simplifying computations. Additionally, interest paid during the pre-construction period for home loans on rented properties is now deductible—effective relief for property investors and those with rental income.
4. Alignment of UPS with NPS Tax Benefits
Lumpsum withdrawals and premature exits under the Unified Pension Scheme (UPS) will now be taxed on par with the National Pension System (NPS), removing previous discrepancies and ensuring equal treatment for pension savers.
Legislative Context & Taxpayer Takeaways
Modernization Push: The Income Tax Bill 2025, significantly overhauled based on Select Committee input, integrates 285 recommendations and remains consistent with the simplified tax structure introduced in the 2025 Budget.
Middle-Class Focus: The bill retains key relief features such as an exemption for annual income up to ₹12 lakh and streamlined compliance norms—continuing efforts to reduce complexity and benefit salaried and middle-income taxpayers.
What This Means for Taxpayers
| Taxpayer Group | Key Benefit |
|---|---|
| Retirees | Full commuted pension is now tax-exempt when received from eligible funds. |
| Homeowners/Investors | Easier computation of property income; pre-construction interest eligible. |
| UPS Investors | Same favorable tax treatment as NPS for lump-sum and premature withdrawals. |
| General Taxpayers | Leaner tax code, faceless assessments, and reduced compliance burden. |
