House panel report on new I-T Bill: Here are the 5 key takeaways for individual taxpayers

After the I-T Bill, 2025 was introduced in the Lok Sabha in February, there was buzz around change in rules that disallowed refund to late return-filers. Taxpayers who file returns after the due date, usually July 31, or the extended due dates (September 15 for assessment year 2025-26) would not be eligible for any tax refunds.

While the I-T department denied that the bill proposed changes to the refund provisions, the committee has recommended that sub-clause (1)(ix) from Clause 263 be removed “…to provide flexibility for allowing refund claims in the cases where the return is not filed in due time”.

If the recommendations are accepted, late-filers will be able to claim tax refund even after the new I-T Bill comes into force.

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

Small taxpayers may not have to file returns

Many small taxpayers, including senior citizens, are forced to file returns only to claim refund on excess tax deducted at source (TDS).  Not filing returns has consequences. The committee has recommended that the law should not force taxpayers to file a return merely to avoid penal provisions.

"The current mandatory requirement 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 report said.

Computation of standard deduction on house property

House property tax is a hot button issue and the 31-member panel has sought to address it by recommending two amendments.

“Firstly, in clause 22(1)(a), to explicitly state that the standard 30 percent deduction is to be computed on the annual value after deducting municipal taxes; and secondly, in clause 22(2), to ensure that the deduction for pre-construction interest is available for let-out properties in addition to self-occupied ones, aligning it with the existing Act,” the report said.

The suggestions are in line with the existing provisions, tax experts said. “For instance, if the property value is Rs 100 and municipal taxes amount to Rs 5, 30 percent standard deduction on house property income will be applicable not on Rs 100 but Rs 95. This is in the nature of clarification to avoid disputes later,” said Mayank Mohanka, founder-director, TaxAaram.com.

Residency status norms

The committee has sought to reinstate the existing laws that determine taxpayers' residency during a financial year.

"The first draft had rephrased the words '...for the purpose of employment...' to 'for employment' which restricted the scope for Indian citizens. The committee has recommended that the existing rules under the Income Tax Act, 1961, be reinstated.

"The first one is much broader. So, I can go abroad to look for employment — even if I might not land a job, the purpose was for employment. The current definition in the new Income Tax code restricts the scope. The recommended amendment is, thus, a relief for taxpayers," Mohanka said.

Also read: New Income Tax Bill to consider crypto as 'undisclosed income' during searches

Section 80G donations to charities, political parties

In the new tax bill, clause 133 corresponds to the Income Tax Act’s (1961) section 80G, which deals with concessions on donations made to charitable institutions and political parties.

On comparing section 80G and clause 133 wordings, the committee has pointed a missing word in the new clause.

“While the first reference in the clause (133) to adjusted gross total income is comprehendible, the subsequent contextual reference is to gross total income. The absence of the word (adjusted) could lead to higher deductions, belying the intent of the clause,” the committee said.

It has suggested that the finance ministry rephrase “gross total income” to “adjusted” gross total income to rectify an omission that could, unintentionally, lead to higher tax liability.

Section 80G offers deductions of 50-100 percent on amount donated to approved charitable institutions, subject to an overall cap of 10 percent adjusted gross total income.

Gross total income is computed without factoring in exempt income, chapter VIA deductions, capital gains and so on, while adjusted gross total income is reduced by these incomes and deductions.