Income Tax Bill 2025: Select Committee suggests refund for Belated Tax Returns

The proposal is particularly significant because many individuals, while eligible for refunds due to excess TDS, often miss the filing deadline and risk losing their deductions.

Taxpayers who miss the income tax filing deadline may soon have a better shot at securing their refunds. The Select Committee of the Lok Sabha, in its recommendations on the draft Income-Tax Bill, 2025, has proposed a crucial modification to Clause 270(1)(a)(v)—a move aimed at offering relief to belated filers seeking deductions and refunds.

Under the existing Income-tax Act, 1961, if a return is filed after the due date, certain deductions—mainly under Heading C of Chapter VIII (which covers specific incomes like royalty, patents, and employment of new workers)—are disallowed. However, the newly proposed Clause 270 of the draft Bill broadens this disallowance to the entire Chapter VIII, which includes a wide range of deductions such as those for life insurance premiums, health insurance (Section 80D), education loans, donations (Section 80G), and more.

This blanket disallowance raised serious concerns. The Committee noted that such a provision would penalize taxpayers heavily for even a minor delay in filing, stripping them of deductions and increasing their tax liability significantly—even when the delay may be unintentional or due to unavoidable circumstances.

Recognising the disproportionate impact of this rule, especially on salaried individuals and small taxpayers, the Committee recommended limiting the disallowance back to only Heading C of Chapter VIII, in line with the current law. This ensures that routine deductions—such as those claimed under Sections 80C, 80D, and 80G—remain available even if the return is filed after the due date, helping taxpayers avoid undue financial strain.

"The Committee observed that the proposed Clause 270(1)(a)(v) stipulates a broad disallowance of deduction under Chapter VIII if the return is furnished beyond the due date. However, the existing Income Tax Act, 1961, does not have such a blanket disallowance for the entire Chapter VIII instead such a restriction was limited to deductions claimed under Heading C – "Deductions in respect of certain incomes" within Chapter VIII. Therefore, to align the provision with the current law, the Committee recommended that Clause 270(1)(a)(v) be modified to restrict the disallowance only to deductions under Heading C of Chapter VIII," as per the press release shared by the government.

The proposal is particularly significant because many individuals, while eligible for refunds due to excess TDS, often miss the filing deadline and risk losing their deductions. If adopted, the Committee's recommendation would mean that such taxpayers could still claim their refund, provided the delay isn't grossly negligent or repeated.

Baijayant Panda, Chairperson of the Select Committee of Lok Sabha, presented the report of the Select Committee on the Income-Tax Bill, 2025 to the Lok Sabha on 21st July, 2025. The Bill was introduced in Lok Sabha on 13th February, 2025, and referred to the Select Committee on the same day through a motion moved by Nirmala Sitharaman, Minister of Finance and Corporate Affairs. The Committee, comprising 31 members of Lok Sabha, was tasked with examining the Bill and submitting its report by the first day of the Monsoon Session, 2025.