The Lok Sabha on Monday approved the Income-Tax (No. 2) Bill, 2025, a modified version of an earlier Bill, as part of its plans to streamline and simplify direct laws.
While the proposed law includes not many policy proposals, it seeks to clarify that limited liability partnerships (LLPs) not claiming any deductions won’t attract 18.5% alternate minimum tax (AMT) on long-term capital gains (LTCG). Saudi Arabia’s sovereign wealth fund PIF and its subsidiaries are specifically mentioned for tax exemption on dividends, interest, and LTCG on investments in infrastructure assets.
Key Exemptions and Benefits for Investments and Pensions
It also included the recent government decision to extend the income tax benefits available under the market-linked national pension system (NPS) to the guaranteed unified pension scheme (UPS) in a bid to provide further impetus to the scheme. So, a maximum of 60% of the accumulated UPS corpus from contributions during a person’s working years and lump-sum payments is allowed to be withdrawn tax-free at the time of retirement, among others.
Addressing Ambiguity in Tax Rules for LLPs and Remittances
The 624-page Bill, the revised version Income-tax Bill, 2025, incorporates the recommendations made by the Lok Sabha Select Committee headed by Baijayant Panda as well as from other stakeholders. NIL TCS on Liberalised Remittance Scheme (LRS) remittances for education purposes financed by any financial institutions, which was inadvertently missed out has now been incorporated to align with the recently introduced proviso to section 206C(1G) of the Income-tax Act, 1961.
While Saudi Arabia’s PIF is already eligible to get tax benefits like other sovereign wealth funds, it wanted a treatment similar to Abu Dhabi Investment Authority (ADIA), whose name is specifically mentioned in the extant Act. So, inclusion of PIF name under Section 10 (23FE) of the extant Act and the new I-T Bill, will cut down procedures for it to get tax exemption. This assumes importance as PIF or its subsidiaries may pick up 20% stakes each in the two new large refineries being planned by India’s state-run ONGC and BPCL on the country’s west and east coasts, respectively.
With regard to LTCG, the revised Bill addressed the confusion over the applicability of the 18.5% (instead of 12.5%) AMT provision on LLPs which are not claiming any deductions. In the existing I-T Act, it applied to LLPs claiming certain deductions.
Some of the notable recommendations incorporated in the revised Income-tax Bill, 2025 include that taxpayers are allowed to claim a refund even if their return of income is filed beyond the statutory timeline, taxpayers who do not have any income-tax liability can obtain for nil-TDS certificate, and deductions in respect of certain inter-corporate dividends for companies opting for a concessional rate of taxes have been re-introduced in line with the provisions of the existing Income-tax Act, 1961
The provisions relating to the carry forward and set-off of losses have been appropriately amended, and the reference to the beneficial owner has been omitted to align with Section 79 of the Income-tax Act, 1961.
It is also clarified that a 30% standard deduction will be applicable after deduction of municipal taxes while calculating house property income.
“Notable changes such as the inclusion of nil-TCS (tax collection at source) for specified LRS education remittances, provision for nil-TDS certificates, reinstatement of inter-corporate dividend deductions for companies availing concessional tax rates, and the removal of the beneficial owner condition in loss set-off provisions address key gaps in the earlier draft,” Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, said.Another change is related to transfer pricing provisions. In the draft bill, the words “without affecting the generality of sub section (1)” was inserted which has been now removed to address potential ambiguity and dispute. “The language and arrangement of the section has been simplified to render the easy interpretation for taxpayers. However, the essence of the definition of Associated Enterprises has been kept unchanged and changes are intended to bring greater clarity and to avoid disputes,” Amit Maheshwari, Tax Partner, AKM Global, said.
Further, the provision related to block assessment in search and seizure cases has also been streamlined. However, the majority of changes have been made to replace the definition of ‘total income’ with ‘total undisclosed income’, Maheshwari said. The change has been made in line with the amendment made in the Finance Act 2025 to bring certainty in case of search and seizure proceedings.
The Select Committee’s recommendation that exemption should be allowed to non-profit organisations (NPOs) for 5% of the total donation instead of just 5% of anonymous donations, as is the case in the extant Act, has been incorporated in the revised Bill. This amendment addresses an inadvertent drafting anomaly in the original bill, Sachin Garg, Partner, Nangia & Co LLP, said.
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