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The government has given a major gift to pensioners. As per the Income Tax Bill 2025 passed in the Lok Sabha any lump-sum (commuted) pension from a government-approved pension fund will no longer be taxed. Earlier this exemption was available only to government employees but now private sector employees who have invested in any recognised pension fund (like the LIC Pension Fund) will also be eligible for the benefit. What Is A Commuted Pension? A commuted pension means receiving a one-time lump sum in place of monthly pension installments. For example if a pensioner wants to receive the next 10 years of pension in one payment it is called a commuted pension. This gives the retiree immediate access to a large amount which can be used for personal needs or investments. Who Is Eligible In A New Scheme? Under the new provisions: All government employees including defence personnel and employees of public sector undertakings are eligible. Private sector employees whose employers do not operate a pension scheme but who have themselves contributed to an approved pension fund. What Has Changed Now? Under the existing income tax law the lump-sum (commuted) pension received by government employees was completely tax-free while for non-government pensioners the amount was fully taxable. The Lok Sabha’s Select Committee called this a discriminatory tax policy and recommended reforms. The 2025 Bill will now remove this disparity and have granted equal tax exemption to all eligible pensioners. Many people in the country voluntarily invest in recognised pension schemes but if they are not government employees they do not get tax exemption. This amendment will not only reduce the tax burden but also encourage more people to invest in pension funds for retirement planning.