Taxpayers whose income falls below the taxable threshold, but who end up having tax deducted at source for a variety of reasons and then file income tax returns solely for the purpose of a refund, may no longer have to do so.
A recommendation to this effect was made by the Select Committee on the Income-Tax Bill 2025 , according to government functionaries directly familiar with the legislation. (AP)
Instead, they may be able to claim a refund by filling up a simple form.
A recommendation to this effect was made by the Select Committee on the Income-Tax Bill 2025 , according to government functionaries directly familiar with the legislation.
“The panel felt that the current mandatory requirement to file a return solely for the purpose of claiming a refund can inadvertently leads to prosecution, particularly for small taxpayers whose income falls below the taxable threshold but from whom TDS has been deducted. In such cases, the law should not compel a return merely to avoid penalty,” one of the functionaries said, asking not to be named.
This person added that the government has accepted the suggestion and it will come as an amendment to the new bill.
According to two other members of the panel, the idea is that instead of an IT return, the CBDT (Central Board of Direct Taxes) can devise a new plan involving a simple form for those who are under the tax threshold. “We discussed it in the meeting. The idea is instead of filing an ITR, one can file a simple form for claims. The process will be linked with Form 26AS.”
Form 26AS is a consolidated statement on tax deducted and collected at source.
“Under the current laws, it is mandatory for a person — whose total income is below the taxable threshold — to file an income-tax return (ITR) to claim refund of any tax deducted at source, for example on bank interest. Delays in filing ITR by the person attract penalties or prosecution despite having no tax liabilities. The committee has suggested simplifying the system,” said a tax expert who did not want to be named.
Section 263 of the new Income-Tax Bill deals with the filing of returns and sub clause 1(9) says “a person who intends to make a claim of refund under Chapter 10” should file a return. The committee suggested doing away with this.
Under the current new tax regime someone with a salary of ₹12.75 lakh a year does not have to pay tax, but when salaried employees do not present required documentation, the employer is required to deduct tax at source. The same is the case for someone who has, for instance, a fixed deposit in a bank, but doesn’t provide the requisite documentation, necessitating the bank to cut TDS on the interest earned. In both cases, the assessee has to file returns to get a refund.
The panel’s voluminous report, adopted on Wednesday after 36 rigorous meetings and clause-by-clause examination of the Bill, also added more accountability to the controversial clause that empowers income-tax (I-T) officials to access computers and other digital devices. The Select Committee led by BJP lawmaker Baijayant Jay Panda has given a total of 566 observations including 285 recommendations.
One of the significant features of the bill is the specific use of term “digital” to underscore the growing importance of digitisation in tax administration, record-keeping and digital transactions, including virtual digital assets such as cryptocurrencies, said a second functionary who asked not to be named.
The purpose of the bill is not only to simplify income-tax laws but also making tax administration nimble and efficient, he said. “For example, the existing Income-Tax Act, 1961 does not specifically mention digital devices, which often become a contentious point in case of litigation. This bill seeks to specifically authorize officials to gain access to digital devices, besides books of account, ledgers and other manual records showing details of income and expenditure.”
The new law is expected to be implemented from April 1, 2026, this person added.
The Select Committee has agreed with nearly all clauses of the bill and most of the suggestions in the report are to improve the provisions and bring more clarity, the functionaries said.
The panel has also given big relief to the chartered accountants (CAs) amid a clamour for other professionals to be given permission to audit tax returns. But the panel agreed with the ministry that audit of financial transactions falls solely within the domain of the Chartered Accountants Act.
The panel’s report, to be tabled in the Lok Sabha, also suggested that circulars and notifications issued under the Old Act will correspondingly apply to the equivalent clauses of the new act ; but areas involving delegated legislation, prescriptions or notifications, new rules and forms will need to be prescribed under the new bill.
The panel, according to the first functionary, has given more concessions to non-residents who have a liaison office in India. The current guidelines say that every such person shall, in respect activities in a tax year, prepare and deliver to the Assessing Officer (AO) having jurisdiction, within sixty days from the end of such tax year, a statement, in such form and containing such particulars, as prescribed. The panel has suggested increasing this to eight months.
The Bill was introduced in the House on February 13. It aims to abridge the bulky direct tax act and make it simple. Some of the key changes in the bill include reorganising major tax exemptions into distinct schedules for better clarity, elimination of the concepts of ‘previous year’ and ‘assessment year’ in favour of ‘tax year’ and a clear definition of virtual digital assets (VDAs) along with taxability on income from crypto-assets, including cryptocurrencies.
Despite many countries adopting Jan-December as the calendar, the bill retained India’s traditional April to March cycle.
“It is commendable that the Income -Tax Bill, 2025 has been thoroughly examined and adopted by the Select Committee in such tight timelines. We are optimistic that the updated legislation would reflect industry’s suggestions on the Draft Bill. For instance, withdrawal of intercorporate dividend deduction for companies opting for 22% corporate tax rate; withdrawal of the facility to obtain NIL TDS certificate; and definition of gross receipts under presumptive taxation for non-residents providing services for electronic manufacturing in India were some of the concerns that should hopefully be addressed,” said Sameer Gupta, partner and national tax leader at consultancy firm EY India.
Presenting the Union budget on February 1, finance minister Nirmala Sitharaman said taxation reforms are key to realise the Modi government’s vision of ‘Viksit Bharat’. “The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation,” she said in her speech.
The government formed 26 sub-committees and review committees to prepare the draft. The draft bill was prepared after analysing and incorporating key suggestions out of 20,000 responses received from various stakeholders. Around 180 offices were involved in the entire process.
