Unified Pension Scheme (UPS) gets a boost in new tax bill; key details you should know

The Taxation Laws (Amendment) Bill, 2025, introduced in the Lok Sabha, seeks to amend the Income-tax Act, 1961 and also to amend the Finance Act, 2025.

The Bill introduces new clauses (12AA) and (12AB) to Section 10 of the Income-tax Act. These clauses provide a tax exemption for payments from the National Pension System Trust to a subscriber of the Unified Pension Scheme.

This exemption is for up to 60% of the individual corpus received at the time of superannuation, voluntary retirement, or retirement under specific rules.

It also exempts any lumpsum amount received under the scheme as per a specific government notification from January 24, 2025.

The Bill amends Section 80CCD to clarify the tax treatment of amounts received from the Unified Pension Scheme. It states that any amount received by an assessee or their nominee on superannuation or retirement will be considered income in the year it's received and will be charged to tax accordingly.

The Bill expands the definition of a "specified person" under Section 10(23FE) to include the Public Investment Fund of the Government of the Kingdom of Saudi Arabia and its wholly owned subsidiaries. This allows them to receive certain tax benefits on investments made in India. This change is a result of a new understanding between the governments of India and Saudi Arabia.

The Bill also amends the Finance Act, 2025, to change the rules for block assessments in search cases. This includes clarifying how pending assessments are handled when a tax search is initiated. The amendment aims to ensure the correct application of the block assessment scheme.

The government announced in July that all tax benefits available under the New Pension Scheme (NPS) will now also apply to the Unified Pension Scheme. UPS, which was officially implemented on April 1, 2025, is now eligible for the same tax deductions and exemptions as the NPS.