Quick Summary
The Lok Sabha on Monday passed the Income Tax Bill 2025, marking a significant shift in the taxation of pension income in India. One of the most notable reforms is the full tax exemption on commuted pension received from approved pension funds - a move that brings long-awaited relief to government pensioners, private sector employees, and voluntary pension fund contributors. What Has Changed? Under the earlier tax regime, only government employees and select others were allowed full tax exem
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FAQ :
A commuted pension is a one-time lump sum payment that a retiree can choose to receive instead of their regular monthly pension payments.
All eligible pensioners will benefit, including government employees, private sector employees, and individuals who have self-invested in approved pension funds.
The new provisions will be effective from April 1, 2026, meaning the benefits will apply to income tax returns filed for the financial year 2026-27.
The exemption applies to pension funds approved under Section 10(10A) and Section 10(23AAB) of the Income Tax Act, 1961, such as the LIC Pension Fund and others notified by the central government.
Previously, only government employees and a select few others received full tax exemption on their commuted pension. Private individuals often faced full taxation on this income.
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