No relief for seniors, small taxpayers: Refunds still require ITR filing under new tax law

New Income Tax Bill 2025: Under the new Income Tax Bill, 2025, several recommendations from the 31-member parliamentary panel chaired by BJP MP Baijayant Panda were adopted. While the Bill clarifies that taxpayers filing belated or revised returns beyond the due date will remain eligible for refunds of excess tax deducted during a financial year, it has left out one important change that could have significantly eased compliance for small taxpayers.

A major relief proposal — doing away with the requirement to file income tax returns solely to claim refunds — has not been included in the final legislation. This omission means that many small taxpayers, including senior citizens, will continue to face the administrative burden of filing returns just to recover excess tax deducted at source (TDS), even when their income is below the basic exemption limit.

The Select Committee had specifically recommended that the law should not compel taxpayers to file a return merely to avoid penal provisions, particularly in cases where the sole purpose is to claim a refund. The report stated: “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.”

However, Section 433 of the new Income Tax Bill remains unchanged. It mandates that “every claim for refund under this part shall be made by furnishing a return as per section 263,” which requires a person seeking a refund under Chapter XX to file a return for the relevant financial year. In effect, there is still no standalone mechanism to obtain a refund without return filing.

Tax experts say this is a missed opportunity to reduce unnecessary compliance. Sharanya Tripathi, Advocate at Jotwani Associates, called it a “glaring omission” that preserves an avoidable burden.

“This omission matters for two reasons,” Tripathi said. “First, it forces low-income and vulnerable taxpayers to engage with a return filing process they otherwise wouldn’t need. Second, it creates a legal trap where honest taxpayers who file late to claim a legitimate refund risk penalty exposure under the new return-based refund regime.”

Tripathi warned that without reform, small taxpayers — particularly senior citizens — will continue to face hardship in navigating complex tax processes.

“Turning to the practical implications, it is unacceptable that small taxpayers are still compelled to file returns solely to reclaim excess TDS deductions even when their total income is below the basic exemption limit,” she said. “The Select Committee had clearly advised against forcing such filings just to avoid penalties. Yet the final Bill continues to make return filing the only route for obtaining a refund. Lawmakers should urgently act on the committee’s recommendation and create a penalty-free, simplified refund mechanism that genuinely eases the burden on small taxpayers,” Tripathi added.

The government has not yet indicated whether it will revisit this provision, but tax practitioners expect continued lobbying to implement the committee’s advice in future amendments. Until then, the status quo remains — refunds will continue to be linked to mandatory return filing, no matter how small the taxpayer’s income.