Lok Sabha approves Taxation Laws (Amendment) Bill 2025, proposing higher standard deductions, pension exemptions, and incentives for Saudi investment funds.
The Lok Sabha, India’s Lower House of Parliament approved the Taxation Laws (Amendment) Bill, 2025 on 11 August 2025.
The proposed measures include granting tax exemptions to participants in the Unified Pension Scheme, bringing its benefits in line with those of the National Pension System.
The bill also introduces an increased standard deduction of INR 75,000 under the revised tax regime for the 2025–26 financial year and extends tax incentives to public investment funds from Saudi Arabia.
Transfer Pricing
Under the 2025 bill, royalty income is taxable only when the underlying rights or services are used in India. In the original bill, the definition of royalty income mistakenly referred to “outside India,” which would have resulted in royalties used abroad being subject to tax. This has been corrected in the 2025 bill, making clear that royalties are taxable only when connected with use within India, in line with the 1965 Act.
The rules on associated enterprises have also been consolidated into a single clause, simplifying how businesses assess whether an AE relationship exists. The 2025 bill reinstates the principle that if AE conditions are satisfied at any point during the tax year, the entities are treated as associated for the entire year.
Capital gains and corporate restructuring
Fair Market Value (FMV) of an asset is to be applied only where the law specifically provides for it. This corrects the position under the 1965 Act where unintended use of FMV had led to unfair tax adjustments.
The bill continues with the “block of assets” system for depreciation and capital gains on depreciable assets such as machinery, furniture, and intangibles. When any asset within a block is sold, capital gains are calculated on the overall written down value (w.d.v.) of the block rather than on individual assets.
The bill grants relief to NRI (excluding FPI) on Long Term Capital Gain (LTCG) from unlisted securities of Indian companies. LTCG is calculated using the original foreign currency of acquisition (e.g., USD, GBP) and converted into INR only after determining net gains. This ensures fair taxation based on real economic gain. For listed securities, taxation continues to be based on INR, regardless of currency movements.
The term “beneficially held” is retained, in line with the 1965 Act, instead of “beneficially owned.” This allows companies to carry forward losses if the 51% shareholding test is met.
The bill restores the deduction for inter-corporate dividends where companies opt for the concessional 22% tax regime. Dividends received from other companies or business trusts can be passed on to shareholders without being taxed multiple times, preventing double taxation that had been introduced in the earlier draft.
The bill must be passed by the Rajya Sabha and signed by the president before it can become law.
Earlier, the Indian Union Cabinet approved the Income Tax Bill 2025, which superseded the old Income Tax Act of 1961.
