Commuted Pension, House Property Income, Zero TDS, and Other
Changes in the Income Tax Bill 2025
The latest version of the Income Tax Bill, 2025 fixes
several drafting errors and will take effect from April 1, 2026, for the
financial year 2026–27. These corrections address issues related to zero TDS
certificates, standard deductions on house property income, tax deductions on
commuted pensions for non-employees, and more.
In this article, we summarise some of the key corrections
made in the revised Income Tax Bill, as addressed by the Finance Minister.
On Monday, the Lok Sabha passed the updated Bill, which
fixes errors in the earlier draft that could have caused refund issues for
taxpayers, made TDS rules more complicated, and restricted certain
property-related deductions. Experts say these amendments restore clarity,
bring the law in line with long-standing provisions, and help avoid unnecessary
litigation.
For individual taxpayers, the main updates include:
• Refunds
for late or revised ITRs
• Zero TDS
certificates
• Standard
deductions on house property income
• Deductions
on pre-construction interest for home loans
Zero TDS Certificates
In April 2025, Wealth Online, with help from EY, highlighted
an error in the Bill.
Section 197 of the Income-tax Act, 1961 allowed for both “nil” and “lower”
deduction certificates. However, the parallel Section 395 in the Income Tax
Bill, 2025 removed the explicit mention of “nil” deduction and only referred to
“lower” deduction.
Examples of taxpayers who may need a zero TDS certificate
include:
• Individuals
with income below the basic exemption limit of ₹2.5 lakh (old regime) or ₹3
lakh (new regime) for those under 60 years of age
• Taxpayers
with income up to ₹12 lakh eligible for full rebate under Section 87A
• NRIs
claiming DTAA benefits
While one could argue that “nil” is included within “lower”
deduction, the lack of clarity created interpretation issues — especially when
a zero rate was intended but not explicitly stated.
To avoid such ambiguity and operational challenges, the revised Bill restores the original language from Section 197 of the 1961 Act into Section 395 of the 2025 Bill. Experts say this will provide much-needed relief and prevent unnecessary disputes.
Tax Deduction on Commuted Pension
explains that under Section
10(10A)(iii) of the Income-tax Act, 1961, read with Section 10(23AAB), the law
grants full tax exemption on commuted pension payments received from approved
pension funds — not just for employees, but also for others, regardless of
employment status.
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ommuted Pension – Relief for Non-Employees
Originally, Clause 19 of the Income-tax Bill 2025 gave tax
exemption on commuted pension only to salaried employees.
This meant people who get pension from approved pension
funds but are not employees (like independent contributors or nominees) were
left out.
The Select Committee spotted this gap and suggested adding a
deduction under Income from Other Sources for such non-employees.
In the revised Bill, Section 93(1)(g) was added — allowing a
full deduction on commuted pension for non-employees receiving it from approved
pension funds.
The goal is to treat both salaried and non-salaried
pensioners equally, in line with the old Income-tax Act, 1961.
This is not a tax exemption but a tax deduction, so the
amount is reduced from taxable income instead of being completely ignored for
tax purposes.
Standard Deduction on House Property
If you earn income from a house property, you get a standard
deduction of 30% on the net annual value after deducting municipal taxes paid.
The new Bill clarifies that this calculation will be done
after subtracting municipal taxes — same as the existing Income-tax Act, 1961.
Pre-Construction Interest for Let-Out Properties
Under the current law, interest paid on a home loan for a
property (self-occupied or rented) during the pre-construction period can be
claimed in five equal yearly installments starting from the year construction
finishes.
The first draft of the new Bill only allowed this benefit
for self-occupied houses — not rented ones.
The Committee flagged this as unfair and recommended
restoring it for rented/deemed rented properties as well.
The revised Bill now gives the benefit for both
self-occupied and rented properties, matching the existing law.
Anonymous Donations to Charities
In the February draft of the Bill, the 5% tax exemption for
anonymous donations was calculated as 5% of anonymous donations, not 5% of
total donations.
This would have greatly reduced the tax-free amount for many
non-profits.
The Committee recommended restoring the original method — 5%
of total donations — and this change has been included in the revised Bill,
bringing it back in line with the current law.
Tax Rules for Vacant Commercial Property
Under the current Income-tax Act, if a property is used (or
meant to be used) for business, it’s taxed as business income — not as “Income
from House Property.”
Also, the “deemed rent” rule for vacant properties applies
only to residential properties, not commercial ones.
In the first draft of the new Bill, only occupied commercial
properties were excluded from house property tax.
This wording could have let tax officers treat vacant
commercial properties (like idle warehouses, factories, or showrooms) as
“deemed rented” and tax them unfairly.
The Committee recommended keeping the same wording as the
current law so both occupied and vacant commercial properties are excluded.
This change prevents unnecessary disputes, avoids unfair
taxation, and ensures the law matches business realities.
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