Parliament approves Bill offering tax advantages to UPS subscribers on a level with the New Pension Scheme.
News Article: Taxation Laws (Amendment) Bill, 2025, Aims to Boost Foreign Investment and Unified Pension Scheme
The Taxation Laws (Amendment) Bill, 2025, a significant legislative amendment to the Income-tax Act, 1961, and the Finance Act, 2025, has been passed by both houses of the Indian Parliament in August 2025. The Bill, which awaits presidential assent, aims to align tax laws with new pension reforms, international investment agreements, and procedural clarifications.
Key provisions related to the Unified Pension Scheme (UPS) and foreign investment funds include:
Unified Pension Scheme (UPS) Tax Benefits:
The Bill extends all tax benefits available under the New Pension Scheme (NPS) to subscribers of the Unified Pension Scheme, implemented from April 1, 2025. This means UPS subscribers are eligible for the same deductions and exemptions that NPS members enjoy, enhancing the attractiveness of the new scheme aimed at simplifying and unifying pension contributions.
Foreign Investment Funds - Tax Exemptions:
The Bill expands the definition of a "specified person" under Section 10(23FE) to include the Public Investment Fund (PIF) of Saudi Arabia and its wholly-owned subsidiaries. This inclusion grants these sovereign wealth funds certain direct tax benefits on their investments in India, a move reflecting a bilateral agreement between the governments of India and Saudi Arabia, intended to boost foreign investment.
The Bill also seeks to amend the Income Tax Act, 1961, and the Finance Act, 2025. It modifies the rules for block assessments in Income Tax search cases, clarifying how pending assessments are handled during such searches. This aims to ensure correct and consistent application of block assessment provisions, improving tax administration without affecting core tax liability rules directly.
Rajesh Gandhi, Partner at Deloitte India, suggested removing withholding tax on exempt income earned by such funds. He also suggested extending tax benefits to holding companies set up prior to 2021, allowing reinvestment of dividend income within the group without triggering double taxation of dividend income, extending tax exemption to indirect share transfers, and extending tax benefit to capital gains from unlisted bonds/debentures.
The proposals relating to tax benefits for investment by foreign pension funds and sovereign funds in the infrastructure sector are similar to the existing tax law, but the provisions have been drafted in a more structured and concise manner.
Any payment made from the NPS Trust to a UPS subscriber, not exceeding 60% of the individual's corpus at the time of superannuation, voluntary retirement or retirement, will be exempt from income tax. The Unified Pension Scheme now offers income tax exemptions for specific payouts, including partial withdrawals and lump-sum receipts.
The amendments in the Bill address several key areas that were points of discussion in the earlier draft. The Bill was passed without discussion or a detailed reply by the Finance Minister and will be sent to the President for her assent after it is returned by Rajya Sabha.
[1] The Hindu
[2] Business Standard
[4] Livemint
[5] Financial Express
- The Taxation Laws (Amendment) Bill, 2025, aims to unify the pension scheme and facilitate foreign investment, aligning tax laws with new reforms and international agreements.
- The Bill extends all tax benefits available under the New Pension Scheme (NPS) to subscribers of the Unified Pension Scheme (UPS), enhancing the attractiveness of the new scheme.
- The Bill grants certain direct tax benefits on investments by the Public Investment Fund (PIF) of Saudi Arabia and its wholly-owned subsidiaries, aiming to boost foreign investment.
- Rajesh Gandhi, Partner at Deloitte India, suggested further amendments to the Bill to remove withholding tax on exempt income, extend tax benefits to holding companies, and provide tax exemptions for indirect share transfers and capital gains from unlisted bonds/debentures.
- The proposed tax benefits for foreign pension funds and sovereign funds investing in the infrastructure sector follow the existing tax law, but are drafted in a more structured and concise manner.
- Any payment made from the NPS Trust to a UPS subscriber, not exceeding 60% of the individual's corpus, will be exempt from income tax, offering income tax exemptions for specific payouts under the UPS.
- The Bill addresses key areas of discussion in the earlier draft, seeking to improve tax administration and simplify tax laws, with provisions expected to stimulate economic growth, industry investment, and foreign interest in Indian business and politics.
