Tax exemptions for UPS subscribers, Saudi Investment Fund get parliament nod

The Bill will now be sent to Rajya Sabha
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SIVA SARAVANAN S

Amid pandemonium, the Lok Sabha on Monday passed the Taxation Laws (Amendment) Bill, 2025, which aims to provide tax exemptions to subscribers of the Unified Pension Scheme (UPS) among others. It also proposes to provide for certain direct tax benefits to public investment funds of Saudi Arabia.

This was one of the two tax Bills which were passed without discussion or a detailed reply by the Finance Minister. The Bill seeks to amend the Income Tax Act, 1961, and the Finance Act, 2025. It will be sent to the President for her assent after Rajya Sabha returns it.

The government in July announced that all tax benefits available under the New Pension Scheme (NPS) shall apply to the UPS, which was implemented from April 1, 2025. Post enactment, any payment made from the NPS Trust to a UPS subscriber – which does not exceed 60 per cent of the individual’s corpus at the time of superannuation, voluntary retirement or retirement – will be exempt from income tax.

If the UPS subscriber, or their nominee, receives any amount from the scheme before their superannuation, retirement or voluntary retirement, it will be treated as income and will be taxed accordingly.

Explaining the amendment, Amit Maheshwari, Tax Partner at AKM Global, said that the new Bill aims to align tax laws with new pension reforms, international investment agreements, and procedural clarifications, addressing several key areas that were points of discussion in the earlier draft.  

“A central feature of the 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,” he said.

Industry opinion

In a significant step to boost foreign investment, the Bill also extends the benefits available to sovereign wealth funds to Saudi Arabia’s public investment fund and its wholly-owned subsidiaries.

Rajesh Gandhi, Partner at Deloitte India, said that 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 though the provisions have been drafted in a more structured and concise manner.

“The government could have considered industry suggestions while drafting the proposals including extension of 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, extension of tax exemption to indirect share transfers, extension of tax benefit to capital gains from unlisted bonds/debentures as well as removal of withholding tax on exempt income earned by such funds,” he said.

Published on August 11, 2025