Parl Panel report on Income Tax Bill focuses on taxpayer protection, reduced compliance

The new I-T Bill intends to replace the Income Tax Act of 1961.

The 31-member Select Committee of Lok Sabha, tasked with examining the Income Tax Bill, 2025, has suggested 32 amendments to the new code - intended to replace the Income Tax Act of 1961 – that are largely corrective and meant to fix drafting errors, with the report tabled before the Parliament on July 21 by the Committee Chairperson Baijayant Panda, a member of the Bharatiya Janata Party (BJP).

Refund Flexibility

The Committee has recommended removal of sub-clause (1)(ix) of Clause 263 to provide flexibility for allowing refund claims in cases where the return is not filed on time. This will offer relief to small taxpayers and senior citizens by permitting refund claims even if returns are filed after the due date. This is an important recommendation to prevent undue hardship for those with income below the taxable threshold but with TDS already deducted, noted tax experts.

As per the new Bill, 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,” said the Committee’s report. "In such scenarios, the law should not compel a return merely to avoid penal provisions for non-filing," it added.

During its examination, the committee has identified a need to align the definition of 'capital asset' in sub-clause 2(22) of new Bill with recent amendments introduced by the Finance Act, 2025. "This alignment is necessary to reflect the contemporary legal landscape regarding the treatment of certain securities held by Foreign Institutional Investors and investment funds," it said.

House Property Deductions

To make house property deductions clearer and fairer for owners, the Committee recommended two main changes. One is to explicitly state that the standard 30% deduction should be figured out based on the annual value after any municipal taxes have been subtracted. The parliamentary panel has also recommended that deduction for pre-construction interest be allowed for both rental properties and self-occupied ones, bringing it in line with the existing Income Tax Act.

Beneficial Owner

Additionally, the Committee seeks to allow companies to carry forward and set off losses upon restoration of the mandated 51% shareholding following temporary changes, while pushing for clarity in defining “beneficial owner” to avoid interpretational ambiguities.

Typically, corporate losses are allowed for carry-forward only where 51% of the beneficial owners of the shares in the year in which loss is incurred continue to remain the same. "The term 'beneficial owner' now includes an individual who derives benefits directly or indirectly from the shares during the tax year…this is a new definition," explained Rohinton Sidhwa, Partner, Deloitte India.

"One will now have to look at the ultimate holding of the individual - it may be administratively difficult to obtain such details especially where the shareholder is a fund or similar organisation," Sidhwa added.

"Collectively, these recommendations underscore the Committee’s focus on promoting taxpayer protection, enhancing fairness, and reducing compliance burdens," said Amit Maheswari, Tax Partner, AKM Global.

"If enacted, these provisions are expected to strengthen transparency, minimize disputes, and further the government’s ambition of creating a contemporary, efficient, and user-friendly tax regime," he added.

Some stakeholders had urged the Parliamentary Committee to reconsider the extent of search and seizure powers in relation to virtual digital space in light of safeguarding privacy and third-party rights, risk of overboard searches, etc. "However, at first glance, no key changes seem to have been recommended," said Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.