By IndiaHub 
On August 12, 2025, Finance Minister Nirmala Sitharaman said in Lok Sabha: “In addition to the New Income Tax Bill, we are bringing certain amendments in the Income Tax Act of 1961. The 4 changes for the Income Tax Act 1961 have also been incorporated in the New Income Tax Bill.”
What are the four amendments made in the Income Tax Act, 1961?
According to the finance minister’s speech in Lok Sabha, here’s are the details:
The major amendments refer to:
- Providing tax exemption on dividend, interest, and long-term capital gains to sovereign wealth funds and pension funds investing in infrastructure between 01.04.2020 and 31.03.2030, subject to notification. The Public Investment Fund (PIF) and its wholly-owned subsidiaries will be named directly in the section for exemption.
- Abatement of all assessments for block periods in search cases until there is a block assessment order. It will be a major reform for Ease of Doing Business.
- Providing clarity for the new Income Tax regime, where standard deduction of Rs. 75,000 will be clarified for salaried individuals.
- Fourth is related to the Unified Pension Scheme (UPS) to clear the confusion on deduction, and bring parity with NPS
What was the issue with standard deduction prior to this amendment?
The Finance Act, 2023, introduced Section 115BAC(1A), which provides revised income tax slab rates for taxpayers who opt for the new tax regime. It classifies rates under three clauses:
- Clause (i): Applicable for financial year 2023-24
- Clause (ii): Applicable for financial tear 2024-25
- Clause (iii): Applicable from financial year 2025-26(inserted via the Finance Act, 2025).
These income tax slab rates define the taxation framework for a particular financial year under which a taxpayer’s income is computed.
Taxmann had pointed out that there was a drafting error and clause iii was not mentioned in Section 115BAC(1A).
Naveen Wadhwa, Vice President, Research and Advisory Division, Taxmann discusses the drafting error in standard deduction that has been corrected now: “I had pointed out that proviso to Section 16(ia) gave a reference to clause (ii) of section 115BAC(1A), which applies to the assessment year 2025-26, but did not mention clause (iii), which governed the assessment year 2026-27. Due to this omission, the enhanced standard deduction of Rs. 75,000 under the new tax regime failed to be available for the current financial year 2025-26. However, in the latest Taxation Laws (Amendment) Bill, 2025 as passed by the Parliament, this drafting error is fixed.”
Taxation rules for UPS
Sanjay Kumar, Director, Nangia Andersen LLP, explains:
- Following the recent amendment through the Taxation Laws (Amendment) Act, 2025 and Office Memorandum, issued by the CBDT’s ITA-I Division dated July 2, 2025, the Unified Pension Scheme (UPS) is now fully aligned with the National Pension System (NPS) for tax purposes.
- Employee contributions are deductible under Section 80CCD(1) within the Rs 1.5 lakh Section 80C limit, plus an additional Rs 50,000 under Section 80CCD(1B), while employer contributions are deductible under Section 80CCD(2) up to 14% of salary for government employees and 10% for others.
- At retirement, up to 60% of the corpus can be withdrawn tax-free, with the balance used to purchase an annuity, taxable as pension income when received. Further, transfers to the annuity or pool corpus are not taxed at the time of transfer. Premature withdrawals or account closures before retirement are fully taxable, while partial withdrawals of up to 25% during service remain exempt, subject to conditions. This alignment removes tax-driven preferences, making the choice between UPS and NPS a matter of scheme design and benefits without being driven by Income-tax considerations.