New Income Tax Bill: Late ITR filers will still be eligible for tax refund

The all-new I-T Bill: no bar on late ITR-filers claiming refund on excess tax deducted

With the Lok Sabha passing the reintroduced Income Tax Bill, 2025 on August 11, individual taxpayers can expect clarity on two key counts: tax refunds in the case of belated returns as well as computation of standard deduction on house property, among other clauses.

This follows the report submitted by the 31-member parliamentary panel headed by Bharatiya Janata Party (BJP) member Baijayant Panda on July 21. The panel had made 285 recommendations, following which the government decided to withdraw the original Bill from the Lok Sabha last week.

While withdrawing the Bill, the government had said it would come out with an updated version, which would include the amendments suggested by the Select Committee.

Once enacted, the new law will come into effect from April 1, 2026, replacing the Income Tax Act, 1961, which has been in force since April 1, 1962.

Also read: Lok Sabha passes revised income-tax bill

Late-filers to be eligible for refunds

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. That is, 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.

Though the income tax department had earlier dismissed such interpretations as incorrect, the ambiguity persisted amongst tax consultants. However, the select committee 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.”

“The government has accepted the recommendations, paving the way for clarity on refund on excess tax. Refund processing will not be linked to furnishing of return within original due date. Even belated and revised returns will also be eligible for refunds,” says Mayank Mohanka, Founder-director, TaxAaram.com.

Also read: FM Sitharaman to introduce New Income Tax Bill in Lok Sabha today. Here's what to expect

Standard deduction on house property

The panel had also recommended that standard deduction be computed after factoring in municipal taxes.

“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 amendments adhere to the spirit of the existing provisions, tax experts said. “This recommendation, too, has been accepted,” 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,” Mohanka explained.