By IndiaHub 
One of the key recommendations from the Lok Sabha’s select committee on the New Income-Tax Bill, 2025 is on tax refunds and ITR filing. The committee said that if any specified small taxpayer wants to file an Income Tax Return (ITR) just to claim a tax refund, they can do so even after the original ITR filing deadline has passed, without the fear of penalties. This means if you are a small taxpayer looking to claim a tax refund but missed the July 31 deadline, it’s not a big deal anymore. You can still file your ITR on or before December 31, 2025, without attracting any penal provisions.
Read below to know who is eligible for this relaxation and what the select committee recommended.
What did the select committee of Lok Sabha recommend?
According to the press release dated July 21, 2025, here’s what the select committee said:
- The Committee observed that 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.
- In such scenarios, the law should not compel a return merely to avoid penal provisions for non-filing. The Committee, therefore, recommended to remove sub-clause (1)(ix) from Clause 263 to provide flexibility for allowing refund claims in cases where the return is not filed in due time.
What does this mean for taxpayers?
S. Sriram, Executive Partner, Lakshmikumaran and Sridharan Attorneys explains
- Clause 263(1)(ix) of the Income-tax Bill, 2025 can be read to mean that every person in whose case TDS is deducted should mandatorily file his/ her income tax return (ITR). Non filing of income tax return (ITR) may result in penalty under clause 479, and imprisonment for a minimum period of three months.
- Though sub-clause (2) of clause 479 indicates that prosecution cannot be initiated unless an assessment order is passed resulting in a tax demand of Rs 10,000 or more, out of abundant precaution, it appears that the Select Committee has recommended omission of Clause 263(1)(ix) of the 2025 Bill.
As can be seen from above, the select committee of the Lok Sabha has specified that this relief is only for small taxpayers whose income level falls below the taxable threshold. S. Sriram says that the phrase ‘income below the taxable threshold’ means the basic exemption limit which is Rs 2.5 lakh for old tax regime and Rs 4 lakh under new tax regime for FY 2025-26 (AY 2026-27).
S. Sriram says: “The maximum amount, which is not chargeable to tax, would mean the minimum amount referred to the slab rate, without having regard to rebates, deductions, allowances, etc.”
Prabhakar K S, Founder & CEO, Shree Tax Chambers, explains: “The Select Committee in its Report presented at Parliament on July 21, 2025 (Monday), expressly suggested dropping the provision of compelling a taxpayer to file his/her Return within the due date to get their refunds. It is unrealistic that an elected Government cannot deny its people their due tax refund just because of not filing the ITR well within the due date. There will be many reasons for a taxpayer not to file his/her ITR within due dates, such as health, travelling, late receipt of relevant papers and information.”
What does Clause 479 of the Income Tax Bill, 2025 say about penal provisions for failure to file an ITR?
Sub clause 1 of Clause 479 reads as follows:
(1) If a person wilfully fails to furnish in due time the return of income, which is required to be furnished under section 263(1), or by notice given under sections 268(1) or 280, he shall be punishable,—
- (a) in a case, where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty- five lakh rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and shall also be liable to fine;
- (b) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and shall also be liable to fine.
Sub-clause 2 of clause 479 reads as follows:
(2) A person shall not be proceeded against under sub-section (1) for failure to furnish in due time the return of income under section 263(1) for any tax year, if
(a) the return is furnished by him before the expiry of one year from the end of the tax year or a return is furnished by him under section 263(6) within the time provided in that section; or
(b) the tax payable by such person, not being a company, on the total income determined on regular assessment, as reduced by the advance tax or self-assessment tax, if any, paid before the expiry of one year from the end of the tax year, and any tax deducted or collected at source, does not exceed ten thousand rupees.
What is the existing rule for tax refunds and ITR filing as per Income Tax Act, 1961?
S. Sriram explains that as per the Income Tax Act, 1961 individual taxpayers are not required to file their income-tax return (ITR), if their total income is less than the maximum amount not liable to tax. “Even if TDS is deducted on their income (say by a bank on their interest income, or by a company on their dividend income), the individual is not required to file ITR. The only consequence in such cases of non-filing of tax return is that the taxpayer would have to forgo refund of TDS.”