Proposed Tax Legislation: Gracious tax exemption for Saudi wealth fund, alleviation of tax burden for LLPs
The Lok Sabha has approved the revised Income-Tax (No. 2) Bill, 2025, a revised version of an earlier Bill, which brings significant changes and benefits to various tax aspects.
Relief for LLPs
The Bill restores a critical relief on alternate minimum tax (AMT) for Limited Liability Partnerships (LLPs) and partnership firms. LLPs that earn only long-term capital gains (LTCG) and do not claim deductions will not be subject to the higher AMT of 18.5%. Instead, they will be taxed at a lower 12.5% rate on LTCG income, easing tax burdens on LLPs with LTCG income.
Tax Exemption for Foreign Investments
The Bill explicitly exempts Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), and its subsidiaries from tax on dividends, interest, and LTCG on investments in infrastructure assets. This aligns with government efforts to attract and clarify tax treatments for foreign institutional investments.
Enhanced Pension Benefits
The Bill extends income tax benefits under the market-linked National Pension System (NPS) to the newly introduced Guaranteed Unified Pension Scheme (UPS). Specifically, up to 60% of the accumulated UPS corpus from contributions during working years and lump-sum payments can be withdrawn tax-free upon retirement, enhancing the attractiveness of pension savings.
Simplification and Modernization
The Bill significantly simplifies the Income-Tax Act, 1961, by reducing its length by about half, cutting down on active sections and chapters, and eliminating the complicated distinction between the assessment year and the previous year. This modernization aims to make tax laws clearer, easier to comply with, and more suited to digital filing and dispute resolution.
No Change in Tax Rates or Regimes
Taxpayers retain the choice between the old and new tax regimes with unchanged tax rates. The Bill focuses more on clarity, better compliance, and removal of unnecessary legal provisions rather than on substantive rate changes.
Timely Refunds and Relaxed Compliance
Taxpayers can claim TDS refunds even if income tax returns are filed beyond the statutory deadline, removing earlier penalties or denial of refunds for late filings.
Power to Frame Faceless Schemes
The Bill enables the government to devise new schemes to conduct tax assessments and collections facelessly (without direct human interface), promoting more transparency and efficiency in tax administration.
Additional Changes
- NIL TCS on Liberalised Remittance Scheme (LRS) remittances for education purposes financed by any financial institutions has been incorporated.
- The provision related to block assessment in search and seizure cases has been streamlined.
- The revised Bill includes the government's decision to extend income tax benefits under the market-linked national pension system (NPS) to the guaranteed unified pension scheme (UPS).
- The Select Committee's recommendation that exemption should be allowed to non-profit organizations (NPOs) for 5% of the total donation, not just 5% of anonymous donations, has been incorporated in the revised Bill.
- Deductions in respect of certain inter-corporate dividends for companies opting for a concessional rate of taxes have been re-introduced.
- The revised Bill aims to streamline and simplify direct tax laws.
- The language and arrangement of the section on transfer pricing provisions have been simplified for easy interpretation.
- A 30% standard deduction will be applicable after deduction of municipal taxes while calculating house property income.
- The revised Bill clarifies that the 18.5% AMT provision on LLPs not claiming any deductions applies, not the 12.5% as in the existing I-T Act.
- The provisions relating to the carry forward and set-off of losses have been appropriately amended.
- Limited liability partnerships (LLPs) not claiming any deductions will not attract 18.5% alternate minimum tax (AMT) on long-term capital gains (LTCG).
- The definition of 'total income' has been replaced with 'total undisclosed income' in line with the amendment made in the Finance Act 2025.
- The revised Bill incorporates the recommendations made by the Lok Sabha Select Committee and other stakeholders.
- Taxpayers who do not have any income-tax liability can obtain for nil-TDS certificate.
In summary, the revised Income-Tax Bill 2025 modernizes and simplifies India’s tax system while providing key tax reliefs and clarifications for LLPs on AMT, exemptions for certain foreign investments, improved pension taxation, and enhanced procedural ease for taxpayers.
Investments in infrastructure assets by Saudi Arabia’s Public Investment Fund (PIF) and its subsidiaries will now be exempt from tax on dividends, interest, and long-term capital gains (LTCG). This is a result of the amendments made by the revised Income-Tax Bill 2025, which aim to attract and clarify tax treatments for foreign institutional investments.
The revised Income-Tax Bill 2025 also clarifies that limited liability partnerships (LLPs) not claiming any deductions will not be subject to the alternate minimum tax (AMT) of 18.5% on long-term capital gains (LTCG) income, but instead will be taxed at a lower 12.5% rate on LTCG income, thereby easing tax burdens on LLPs with LTCG income.
The revised Bill extends income tax benefits under the market-linked National Pension System (NPS) to the newly introduced Guaranteed Unified Pension Scheme (UPS). Up to 60% of the accumulated UPS corpus from contributions during working years and lump-sum payments can be withdrawn tax-free upon retirement, thereby enhancing the attractiveness of pension savings.
