Income Tax Bill 2025: Small Taxpayers May Soon Get Relief from Mandatory ITR Filing for Refund Claims

A parliamentary committee has proposed key amendments to the Income Tax Bill 2025 that could bring significant relief to low-income taxpayers, pensioners, and temporary workers. The most impactful suggestion? Removing the compulsion to file ITR just to claim a refund.

Current Law: Refund Only If You File ITR

Under the draft provisions of the Income Tax Bill 2025, even if a taxpayer’s annual income is below the exemption limit, they must still file an Income Tax Return (ITR) if they want to claim a TDS refund.

Failure to do so within the specified timeline can result in:

• Penalties from the Income Tax Department

• In some cases, legal proceedings

This clause is seen as burdensome for small taxpayers, particularly:

• Low-income earners

• Pensioners

• Seasonal or contractual workers

What Does the Parliamentary Committee Recommend?

The committee, headed by Lok Sabha MP Baijayant Panda, submitted its recommendations to the Lok Sabha on 21 July 2025. Comprising 31 members, the committee closely reviewed the bill and suggested the following key change:

🔴 Delete Clause 263(1)(IX) — the provision mandating ITR filing solely for claiming refunds.

According to the committee:

“This clause disproportionately affects individuals with incomes below the tax threshold. Removing it will simplify the tax process and eliminate unnecessary legal pressure.”

Why This Change Matters

If implemented, the recommendation would mean:

✅ Taxpayers below the exemption limit would no longer need to file ITR just to claim a TDS refund
✅ No risk of penalties or legal action for skipping ITR
✅ A smoother and more accessible process for non-taxable individuals

This would mark a major shift in taxpayer convenience, particularly for those with minimal income or irregular employment.

A Step Towards Simpler Tax Compliance

The committee emphasized that the objective of the new Income Tax Bill should be to make the tax system:

• Simpler to navigate

• More transparent

• Less burdensome, especially for small taxpayers

The report acknowledges that mandatory ITR filing for refund—even when tax liability is zero—adds unnecessary red tape to the system.

Background: When Was the Bill Introduced?

• The Income Tax Bill 2025 was tabled in the Lok Sabha on 13 February 2025.

• Post tabling, it was sent to the parliamentary standing committee on finance for detailed evaluation.

• The committee has now returned its report, which includes multiple pro-taxpayer recommendations.

While the government is not bound to accept all suggestions, there is a strong expectation that amendments will be made in line with the report.

What’s Next?

• The Finance Ministry is expected to review the committee’s recommendations.

• A revised version of the Income Tax Bill may be tabled in the upcoming session.

• If accepted, the refund relaxation clause could be a major win for small taxpayers.

Conclusion: A Welcome Move If Accepted

In a tax environment increasingly powered by automation and strict compliance, this human-centric reform may provide a much-needed balance. By simplifying the refund process for non-taxable citizens, the government could take a meaningful step toward inclusive tax governance