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Lok Sabha clears revised income tax bill, grants UPS tax parity with NPS
The Centre's ambition to replace the over six-decade-old income tax law with a simplified legislation reached a step closer to reality, with the Lok Sabha on Monday approving a revised version of the bill.
The revised Income Tax Bill 2025 incorporates the tax relief offered to UPS subscribers under the Taxation Laws Amendment Bill 2025, which was also tabled in Lok Sabha on Monday.
These tax benefits are already available to National Pension System (NPS) subscribers. UPS is an alternative to NPS that retains employee contribution and guarantees central government staff a pension equivalent to 50% of the average basic pay of the last 12 months after more than 25 years of service.
The tax benefits include exemption on 60% lump-sum withdrawal at retirement.
The revised income tax bill includes most of the recommendations of the select committee of the Lok Sabha to avoid ambiguity in the simplification exercise and seeks to address concerns expressed by the industry and professionals during the consultation period. Rajya Sabha is expected to approve and return the Bill before it receives the Presidential assent for implementation from 1 April next year.
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'A central feature of the income tax bill is the introduction of income-tax exemptions for specific payouts under the new Unified Pension Scheme. This includes exemptions for partial withdrawals and lump-sum receipts, a move designed to enhance the attractiveness and utility of the new pension system for subscribers," said Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm.
Key provisions
In the bill cleared by Lok Sabha, alternate minimum tax (AMT) applicability to limited liability partnerships (LLPs) is aligned with the current Income-tax Act, 1961 provisions. Expansion of its scope to include LLPs not claiming tax benefits has been done away with. Provisions relating to claiming tax refunds have also been streamlined to avoid any confusion, said experts.
'The provisions of AMT are applicable only to those non-corporates who have claimed deductions. LLPs that have only capital gains income are not liable for AMT if there is no claim for deduction," a government official explained.
Currently, Section 80M of the existing income tax law allows companies to deduct certain dividends received from other domestic companies before paying tax, but this benefit was linked mainly to the old regime. The new bill extends this deduction to companies that have opted for the new concessional corporate tax regime as well, the tax official explained.
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The revised bill also requires high-earning professionals, for example, doctors, lawyers and consultants with over ₹50 crore receipts in a year to provide prescribed electronic payment options to customers, similar to large businesses, in addition to other payment options they may already have. The move is expected to help in further widening the tax base.
Simplification efforts
The original text of the bill introduced in February had provided that only returns filed on or before the due date would be eligible for refunds, apparently suggesting that refunds could not be claimed in belated or revised returns, which is allowed under the existing Income-tax Act of 1961.
In the revised bill, as suggested by the select committee, the provision restricting the claim of refund if a return was not filed in time has been deleted, to align it with the existing law. This was an unintended drafting error that has been corrected in the revised bill, explained Sachin Garg, partner at Nangia & Co LLP.
For TDS correction statements, the time period for filing statements has been reduced to two years from six years in the Income-tax Act, 1961. 'This is expected to reduce the grievances of deductees substantially," added the government official cited earlier.
'The new Act will further turbocharge growth by making taxes easy to understand, easy to comply with, thus reducing disputes and litigation," Baijayant Jay Panda, chairpeson of the Lok Sabha select committee, which reviewed the bill, said in a social media post after Lok Sabha cleared the legislation.
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'Majority of the amendments are just language simplification to avoid confusions. There has been no change in tax rates or rebates," said Maheshwari of AKM Global.
