New Income Tax Bill 2025: Refund Allowed for Belated Returns, Tax Benefits for Pension Schemes and More

On Aug 11, 2025, the Lok Sabha approved the updated Income-Tax (No.2) Bill, 2025, along with the Taxation Laws (Amendment) Bill, 2025. These bills amend the Income-tax Act, 1961, and the Finance Act, 2025. The government incorporated most recommendations from the Select Committee, addressing multiple anomalies in the comprehensive 624-page Income Tax Bill

Corrections and Clarifications in the New Income-Tax Bill, 2025

The Income-Tax (No.2) Bill, 2025, addresses drafting errors and removes anomalies. Notably, individuals can now claim refunds for Tax Deducted at Source (TDS) even if their income tax returns are filed after the deadline.

Furthermore, the bill aligns the applicability of the Alternate Minimum Tax (AMT) for LLPs with existing Income-tax Act provisions. It excludes LLPs that do not claim specific tax benefits from an expanded scope that would have subjected them to a higher AMT rate of 18.5%, instead maintaining the preferential 12.5% rate.

Expansion of Tax Benefits for Pension Schemes

The Taxation Laws (Amendment) Bill also broadens tax benefits under the market-linked National Pension System (NPS) by extending them to the Guaranteed Unified Pension Scheme (UPS). This aims to encourage participation by allowing tax-free withdrawal of up to 60% of the UPS corpus or lump sum payments accumulated during an individual's working years at retirement.

Key Inclusion: Saudi Arabia’s Public Investment Fund Gains Explicit Tax Exemption

A notable amendment in the Taxation Laws (Amendment) Bill, 2025, involves the explicit inclusion of the ‘Public Investment Fund of the Government of the Kingdom of Saudi Arabia’ and its wholly-owned subsidiaries in clause (23FE) of the Income-tax Act. This clause governs exemptions related to investments made by specified sovereign funds.

Currently, several sovereign wealth funds, including Saudi Arabia’s Public Investment Fund (PIF), which manages assets exceeding $925 billion, enjoy income tax exemption.

Also Read: New Income Tax Bill 2025: Key Changes in Refunds and House Property Deductions 

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