Simpler TDS refund route on anvil for those below tax limit

Taxpayers whose income falls below the taxable threshold, but who end up having tax deducted at source for a variety of reasons and then file income tax returns solely for the purpose of a refund, may no longer have to do so.

- Saubhadra Chatterji and Rajeev Jayaswal

Instead, they may be able to claim a refund by filling up a simple form.

A recommendation to this effect was made by the Select Committee on the Income-Tax Bill 2025, according to government functionaries directly familiar with the legislation.

"The panel felt that the current mandatory requirement to file a return solely for the purpose of claiming a refund can inadvertently leads to prosecution, particularly for small taxpayers whose income falls below the taxable threshold but from whom TDS has been deducted.

In such cases, the law should not compel a return merely to avoid penalty," one of the functionaries said, asking not to be named.

This person added that the government has accepted the suggestion and it will come as an amendment to the new bill.

According to two other members of the panel, the idea is that instead of an IT return, the CBDT (Central Board of Direct Taxes) can devise a new plan involving a simple form for those who are under the tax threshold. "We discussed it in the meeting. The idea is instead of filing an ITR, one can file a simple form for claims. The process will be linked with Form 26AS." Form 26AS is a consolidated statement on tax deducted and collected at source.

"Under the current laws, it is mandatory for a person -- whose total income is below the taxable threshold to file an income-tax return to claim refund of any tax deducted at source, for example on bank interest. Delays in filing ITR by the person attract penalties or prosecution despite having no tax liabilities. The committee has suggested simplifying the system," said a tax expert.

Section 263 of the new Income-Tax Bill deals with the filing of returns and sub clause 1(9) says "a person who intends to make a claim of refund under Chapter 10" should file a return.

The committee suggested doing away with this.