New Delhi, July 22:
A major relief could be on the way for small taxpayers, as the Select Committee of the Lok Sabha on the Income-Tax Bill, 2025 has recommended removing the mandatory requirement for filing income tax returns solely for the purpose of claiming refunds, even when the individual’s income is below the taxable limit.
The recommendation seeks to amend sub-clause (1)(ix) of Clause 263 of the draft Bill, which currently requires all individuals to file returns if they wish to claim a refund of tax deducted at source (TDS)—regardless of whether their total income exceeds the basic exemption threshold.
Compliance Burden on Small Taxpayers
The committee observed that this clause has created an undue compliance burden on taxpayers such as senior citizens, pensioners, daily wage earners, and others with incomes below the taxable limit. These individuals are often subjected to TDS by banks or employers and are then forced to file returns merely to recover their deducted taxes.
“The current mandatory requirement to file a return solely for claiming a refund could inadvertently lead to prosecution,” the report noted, highlighting the potential misuse of penal provisions against small taxpayers.
According to the committee, failure to file returns on time under this clause could lead to penalties or even prosecution, despite the taxpayer not being liable to pay tax in the first place.
Proposal for Procedural Fairness
To address these concerns, the panel has recommended deleting the specific sub-clause that enforces return filing for refund claims when no tax is actually payable. The change would allow eligible taxpayers to claim refunds without the looming threat of legal action, aligning the law with the principles of fairness, simplicity, and ease of compliance.
“This change would bring procedural fairness into the system,” the report said, adding that it would relieve stress for individuals who fall below the tax threshold but are automatically drawn into the tax net due to TDS.
Background of the Committee and Bill
The Income-Tax Bill, 2025, introduced in the Lok Sabha on 13th February 2025 by Finance Minister Nirmala Sitharaman, proposes to overhaul the existing income-tax framework. The same day, it was referred to a 31-member Select Committee, chaired by Baijayant ‘Jay’ Panda, for detailed review.
The Committee submitted its report to the Lok Sabha on 21st July 2025, as scheduled during the opening of the Monsoon Session.
With the government aiming to create a simplified and taxpayer-friendly tax regime, the Committee’s recommendations are likely to influence the final shape of the legislation. If accepted, the amendment could exempt thousands of small taxpayers from unnecessary return filings and legal risks, promoting greater compliance and trust in the system.
