Bizarre I-T law to penalise taxpayer to change soon: Income Tax Bill 2025 may give relief to specified small taxpayers filing ITR only to claim tax refunds

Time of India

12 hours ago

What did the select committee of Lok Sabha recommend?
Academy
Empower your mind, elevate your skills
The Committee observed that the current mandatory requirement to file a return solely for the purpose of claiming a refund could inadvertently lead to prosecution, particularly for small taxpayers whose income falls below the taxable threshold but from whom tax has been deducted at source.
In such scenarios, the law should not compel a return merely to avoid penal provisions for non-filing. The Committee, therefore, recommended 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.
What does this mean for taxpayers?
Clause 263(1)(ix) of the Income-tax Bill, 2025 can be read to mean that every person in whose case TDS is deducted should mandatorily file his/ her income tax return (ITR). Non filing of income tax return (ITR) may result in penalty under clause 479, and imprisonment for a minimum period of three months.
Though sub-clause (2) of clause 479 indicates that prosecution cannot be initiated unless an assessment order is passed resulting in a tax demand of Rs 10,000 or more, out of abundant precaution, it appears that the Select Committee has recommended omission of Clause 263(1)(ix) of the 2025 Bill.
What does Clause 479 of the Income Tax Bill, 2025 say about penal provisions for failure to file an ITR?
(a) in a case, where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty- five lakh rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and shall also be liable to fine;
(b) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and shall also be liable to fine.
Sub-clause 2 of clause 479 reads as follows:
What is the existing rule for tax refunds and ITR filing as per Income Tax Act, 1961?
How would you feel if you file ITR late for claiming legitimate tax refund but you get penalized for it especially when as per I-T law does not require you to even file ITR. Isn't this bizarre? However, it is going to change soon.One of the important recommendations by the select committee of the Lok Sabha on the Income-Tax Bill, 2025 is about tax refunds and ITR filing. The committee said that if any specified small taxpayers wants to file an Income Tax Return (ITR) solely for the purpose of claiming tax refund then he/she can do so even after the original deadline to file an ITR is over, without the fear of penalties. This means if you are a small taxpayer who wants to claim tax refund but fail to file an ITR on or before July 31, 2025 then it's not a problem anymore. You can still file your ITR on or before December 31, 2025 without attracting any penal provisions.Read below to know who is eligible for this relaxation and what the select committee recommended.According to the press release dated July 21, 2025, here's what the select committee said:S. Sriram, Executive Partner, Lakshmikumaran and Sridharan Attorneys explainsAs can be seen from above, the select committee of the Lok Sabha has specified that this relief is only for small taxpayers whose income level falls below the taxable threshold. S. Sriram says that the phrase 'income below the taxable threshold' means the basic exemption limit which is Rs 2.5 lakh for old tax regime and Rs 4 lakh under new tax regime for FY 2025-26 (AY 2026-27).S. Sriram says: 'The maximum amount, which is not chargeable to tax, would mean the minimum amount referred to the slab rate, without having regard to rebates, deductions, allowances, etc.'Sub clause 1 of Clause 479 reads as follows:(1) If a person wilfully fails to furnish in due time the return of income, which is required to be furnished under section 263(1), or by notice given under sections 268(1) or 280, he shall be punishable,—(2) A person shall not be proceeded against under sub-section (1) for failure to furnish in due time the return of income under section 263(1) for any tax year, if(a) the return is furnished by him before the expiry of one year from the end of the tax year or a return is furnished by him under section 263(6) within the time provided in that section; or(b) the tax payable by such person, not being a company, on the total income determined on regular assessment, as reduced by the advance tax or self-assessment tax, if any, paid before the expiry of one year from the end of the tax year, and any tax deducted or collected at source, does not exceed ten thousand rupees.S. Sriram explains that as per the Income Tax Act, 1961 individual taxpayers are not required to file their income-tax return (ITR), if their total income is less than the maximum amount not liable to tax. 'Even if TDS is deducted on their income (say by a bank on their interest income, or by a company on their dividend income), the individual is not required to file ITR. The only consequence in such cases of non-filing of tax return is that the taxpayer would have to forgo refund of TDS.'