Big Win For Small Taxpayers, NGOs And Homeowners In Draft Report On New Income-Tax Bill

The Parliamentary Select Committee on the Income-Tax Bill, 2025,  submitted its comprehensive report to the Lok Sabha on Monday, suggesting a range of amendments aimed at refining definitions, reducing ambiguities, and ensuring alignment with existing laws.

The panel reviewed the Bill, introduced in Parliament this February, which proposes an overhaul of the Income Tax Act, 1961, focusing on simplifying its structure and language.

The committee’s report runs into 4,584 pages and contains 566 specific recommendations. It reflects extensive consultations with stakeholders and legal experts and aims to deliver a clearer, more taxpayer-friendly legislation. Among the critical suggestions is a call to allow more flexibility for taxpayers seeking refunds, particularly small taxpayers who fall below the taxable threshold but have tax deducted at source (TDS).

Relief for Small Taxpayers and Property Owners

In a move that could bring major relief to low-income earners, the panel has proposed removing the clause that disallows refunds if the income tax return is filed after the due date. The committee observed that the law should not force individuals to file returns solely to avoid penalties. It emphasised that taxpayers whose income is below the taxable limit but have faced TDS should be allowed to claim refunds even if they miss the filing deadline.

The committee also addressed concerns of property owners by recommending that the standard 30 per cent deduction be calculated on the annual value after municipal tax deductions. It further suggested that the benefit of pre-construction interest deduction be extended to let-out properties, mirroring provisions under the current Income Tax Act.

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Clarifications for Charities and Streamlining Procedural Aspects

For non-profit organisations, the panel highlighted the need for clearer definitions, especially around the terms ‘income’ and ‘receipts’, and sought clarity on rules related to anonymous donations. It also recommended doing away with the “deemed application” provision, a move that could help avoid prolonged legal disputes in the charitable sector.

Additional recommendations focus on procedural clarity. These include streamlining rules on advance ruling fees, provisions related to Tax Deducted at Source (TDS) on provident fund withdrawals, issuance of lower-tax deduction certificates, and clarifying penalty-related powers. The panel has also called for aligning the definitions of micro and small enterprises with those in the MSME Act to avoid regulatory mismatches.

With the Income-Tax Bill, 2025, forming a cornerstone of tax reform in India, the panel's recommendations are expected to influence the final shape of the legislation as it progresses through Parliament.

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