New Income Tax Bill 2025: Massive Relief For Pensioners! Commuted Pension Will Be Exempted From Tax

India.com

4 days ago

photoDetails english 2945895 https://zeenews.india.com/photos/business/new-income-tax-bill-2025-massive-relief-for-pensioners-commuted-pension-will-be-exempted-from-tax-2945904 Updated:Aug 15, 2025, 07:06 AM IST Income Tax Bill 2025 Passed In LS
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The revised Income Tax Bill 2025, passed in the Lok Sabha on August 11, has brought great tax relief to government pensioners and private investors. The new Bill states that the entire amount of commuted pension will be exempted from tax, regardless of employment, provided the pension is received from an approved pension fund. Income Tax Bill 2025 Effective From 2026
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This provision will be effective from April 1, 2026. The benefit will be available in the income tax return for the financial year 2026-27. What Is Commuted Pension?
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Employees have the option of receiving their pension in advance as a lump sum payment or every month once they retire. When an employee opts for a one-time lump-sum payout from a pension, it is called a commuted pension. Therefore, a commuted pension allows employees to get a lump sum amount at a time and the remaining amount in fixed installments throughout life. What Are Tax Exemptions For Commuted Pension?
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The amended rule states that if a commuted pension is received from a 'specified fund' listed in Schedule VII of the Income Tax Bill, 2025, then the entire amount of the pension will be deductible from taxable income. This includes the LIC Pension Fund and other notified approved funds.
The revised Bill introduces Section 93(1)(g) to include taxpayers who are not employees but have invested independently in approved pension plans. this means that a self-employed professional or private sector employee can now claim the same tax deduction as a retired government employee receiving a commuted pension. What Was Previous Commuted Pension Tax Exemption?
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Previously, only government employees were eligible for a commuted pension tax exemption. Self-employed individuals or independent investors who voluntarily invest in recognised pension funds had difficulty getting an exemption. The amount of gratuity determined whether the commuted pension of the private investors would be exempted from taxes. However, the new Bill grants private investors the same tax exemption on commuted pension as government employees. Committee's Recommendation On Commuted Pension
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Tax deduction for commuted pension lacked clarity in the previous version of the Bill. The Lok Sabha Select Committee in its observation said, 'The Committee, after a careful review of Clause 19, identified a gap in the equitable tax treatment of commuted pension for different types of recipients.'
The committee recommended that a deduction for commuted pension, similar to that available to employees under Clause 19, be allowed under the head 'Income from other sources' for non-employees who receive such pension from a fund. Who Will Get Commuted Pension Tax Exemption?
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Under the new provision, in addition to government employees, private sector employees, self-employed individuals and private investors who have contributed to an approved pension fund will be eligible to get tax exemption on commuted pension.