New Delhi: The Indian government has made four important amendments to the Income Tax Act, 1961, which will be effective from financial year 2025-26. These changes were included in the Income Tax Bill, 2025, and were recently announced by Union Finance Minister Nirmala Sitharaman. These amendments aim to provide better clarity, correct past errors, and align existing schemes for better tax treatment.
Tax Exemption for Sovereign and Pension Funds
One major amendment gives tax exemptions on dividends, interest, and long-term capital gains for sovereign wealth funds and pension funds that invest in India’s infrastructure sector. This benefit applies for investments made from April 1, 2020, to December 31, 2030.
The Public Investment Fund (PIF) and its wholly owned subsidiaries will now be specifically named in the section to receive this tax benefit. The government believes this move will attract more global funds to invest in Indian infrastructure.
Reforms in Search Case Assessments
The second amendment deals with tax searches and aims to reduce delays and confusion. It clarifies that all regular assessments for block periods will now be suspended until the block assessment order is issued. This means businesses and individuals will no longer be burdened with overlapping tax assessments during searches. The change is seen as a step to make doing business in India easier.
Standard Deduction Now Fixed Under New Tax Regime
The third amendment fixes a drafting mistake from the Finance Act, 2023. Earlier, due to a missing clause, salaried people could not claim the standard deduction of ₹75,000 under the new tax regime in FY 2025-26.
This amendment restores the benefit for those opting for the new tax system, ensuring that salaried employees don't lose out on this important tax relief.
Equal Tax Treatment for Unified Pension Scheme (UPS)
The fourth change brings parity between the Unified Pension Scheme (UPS) and the National Pension System (NPS).
Now, just like NPS, UPS account holders can withdraw up to 60 percent of the fund tax-free upon closure. Also, partial withdrawals up to 25 percent of their contributions will not be taxed. This move will clear confusion and treat both pension schemes equally.
