New Income Tax Bill 2025: Parliamentary Panel Suggests Changes in TDS Refunds, Trust Taxation
One of the key suggestions is that individual taxpayers should be allowed to claim TDS refunds even if they file their income tax return after the due date, without facing fines.
A Parliamentary panel reviewing the draft Income Tax Bill, 2025 has recommended key changes related to TDS refund rules and the taxation of trusts, especially those with both religious and charitable objectives.
The Select Committee of the Lok Sabha, chaired by BJP MP Baijayant Panda, tabled its report in the Lower House on Monday, proposing amendments to the Bill that aims to replace the Income Tax Act, 1961, which has been in force for over six decades.
One of the key suggestions made by the panel is that individual taxpayers should be allowed to claim TDS refunds even if they file their income tax return after the due date, without facing penalties. The panel noted that the current provision requiring timely filing for refunds could unfairly impact small taxpayers whose income is below the taxable limit but have had tax deducted at source.
'In such scenarios, the law should not compel a return merely to avoid penal provisions for non-filing," the panel said. 'The committee, therefore, recommend to remove sub-clause (1)(ix) from Clause 263 to provide flexibility for allowing refund claims in cases where the return is not filed in due time."
This, the panel observed, would adversely affect religious-cum-charitable trusts, a category recognised under the existing law. Under Section 115BBC of the Income Tax Act, 1961, such hybrid entities are granted broader exemptions, as long as the donations are not specifically directed toward educational or medical institutions run by the same trust.
'While the Bill's stated aim is textual simplification, the committee observe a critical omission concerning religious-cum-charitable trusts, which could have substantial adverse impacts on a large segment of India's NPO sector," it said. 'The committee strongly urge the reintroduction of a provision analogous to the explanation found in Section 115BBC of the 1961 Act."
It added that many such institutions receive donations via traditional means like collection boxes, where donor identification is not practically possible, and taxing such contributions would be unjust.
The panel also opposed taxing the gross receipts of NPOs, stating it contradicts the principle of taxing only real income. It recommended that the term 'income' be reintroduced in place of 'receipts' to ensure that only net income is subject to tax.
Overall, the committee's report flags the need for greater clarity and fairness in the new tax regime, especially in areas affecting small taxpayers and the non-profit sector.
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