A parliamentary panel has recommended over 500 changes to India’s draft Income Tax Bill, 2025, aiming to simplify and modernize the country’s tax system. A key suggestion offers a significant break for taxpayers: allowing them to claim TDS (Tax Deducted at Source) refunds even after missing the Income Tax Return (ITR) deadline, without facing penalties. This move could be a huge relief for millions, especially small taxpayers.
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The 4,575-page report, chaired by BJP MP Baijayant Panda, proposes changes designed to ease compliance, reduce ambiguities, and protect genuine taxpayers, including senior citizens, pensioners, temporary workers, and not-for-profit organizations (NPOs).
Currently, individuals with income below the basic exemption limit but with TDS deductions must file an ITR to claim a refund. Failing to do so can lead to penalties, and even prosecution in some cases. The panel found this particularly harsh for those drawn into the tax net solely by automatic TDS deductions. To alleviate this burden, they recommend allowing refund claims even after the due date, provided there’s no intent to evade taxes. They also suggest making penalties for not maintaining books of accounts discretionary rather than automatic, to avoid punishing honest taxpayers for procedural slip-ups.
Structural Reforms and Clearer Definitions
The panel endorsed unifying the terms ‘previous year’ and ‘assessment year’ into a single ‘tax year’ to simplify the tax code. They also suggested updating outdated definitions like “capital asset” and “infrastructure capital company,” and reinforcing the “actual payment” rule, ensuring only expenses actually paid (not just accrued) are allowed as business deductions.
Relief for NPOs and Non-Residents
Regarding anonymous donations, the committee warned that taxing such donations to trusts with both religious and charitable functions (like those running schools or hospitals) could negatively impact NPOs. They recommend maintaining the current exemption for these “religious-cum-charitable trusts” and calling for clearer definitions to ensure these legacy organizations don’t lose their exemptions.
For broader systemic concerns, the panel suggested refining the language of the General Anti-Avoidance Rule (GAAR) by adding “in the circumstances of the case.” This aims to prevent GAAR from being misused against legitimate corporate restructurings. They also backed restoring Nil withholding certificates for non-residents eligible for tax treaty benefits, to avoid unnecessary refund delays in zero-tax situations.
With a total of 566 recommendations, these proposals aim to significantly reduce the compliance burden and streamline India’s tax system. The government’s response to these suggestions and the final form of the Income Tax Bill, 2025, will be closely watched by taxpayers and tax professionals alike.
