No ITR filing exemption for small taxpayers in new Income Tax Bill, say CAs

Small taxpayers might have to continue filing returns to claim refunds, even if their income is below the basic exemption threshold

The new Income Tax Bill, 2025, has been passed by the Lok Sabha after incorporating the recommendations of the 31-member parliamentary panel headed by Bharatiya Janata Party (BJP) MP Baijayant Panda.

For one, it has eliminated the ambiguity around late-return filers being eligible for a refund on excess taxes deducted during a financial year. Put simply, this means that taxpayers who file belated or revised returns beyond the due date will continue to be entitled to refunds.

However, another key suggestion that would have brought relief to small taxpayers does not seem to have made its way to the new Bill: doing away with the need to file returns solely to claim tax refunds. “The perception as reflected in the Select Committee Report, that small taxpayers may no longer be required to file their returns just to claim their refunds does not hold good, as section 433 of the new Bill still mandates that refund can be claimed only via a return of income, and no other means or mode,” points out Mayank Mohanka, Founder-Director, TaxAaram.com.

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

Many small taxpayers, including senior citizens, are forced to file returns only to claim a refund on excess taxes deducted at source (TDS), even if their income is below the basic exemption threshold. 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.

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

The new I-T Bill retains section 433, which states that ‘every claim for refund under this part shall be made by furnishing return as per section 263’. This section says that a person who intends to make a claim of refund under Chapter XX (that deals with refunds in detail) has to furnish a return for the financial year. “So the revised I-T Bill does not seem to have accepted the committee’s suggestion on this count, so to speak,” says chartered accountant Himank Singla.