Income Tax Bill 2025: Big Wins For Taxpayers! Committee Suggests These Major Changes—Details

Income Tax Bill 2025: A parliamentary select committee has suggested major amendments to the proposed Income Tax Bill, 2025, aiming to ease the burden on individual taxpayers and protect the interests of charitable and religious institutions.

The committee, led by senior BJP MP Baijayant Panda, submitted its detailed report to the Lok Sabha on Monday, after carefully reviewing the bill introduced earlier this year.

The Income Tax Bill, 2025, is intended to replace the outdated Income Tax Act, 1961, and simplify India’s tax law in both structure and language. However, the committee noted that while the bill attempts to modernise the system, it also contains several provisions that may have unintended consequences.

In its 4,584-page report, the panel made 566 recommendations, focusing on greater clarity, fairness, and protection for vulnerable groups of taxpayers and institutions.

Allow TDS Refunds Even If Return Is Filed Late

One of the most important suggestions put forward by the committee is to allow individuals to claim refunds for tax deducted at source (TDS) even if they file their income tax returns after the due date. Under the proposed bill, filing returns on time is mandatory to claim any refund.

The committee pointed out that this condition could unfairly impact small taxpayers, particularly those whose income falls below the taxable threshold but have still had TDS deducted. For such individuals, filing a tax return is not legally required, yet the current draft would compel them to do so just to receive what is rightfully theirs. The committee strongly recommended removing this requirement to avoid unnecessary penalties and prosecution for common citizens.

Tax Exemption for Anonymous Donations

Another major concern raised was about the new provision dealing with anonymous donations to non-profit organisations (NPOs). The bill, in its present form, proposes a flat 30% tax on all anonymous donations, offering exemption only to organisations formed entirely for religious purposes.

The committee observed that this could harm a significant number of institutions that operate with a mix of religious and charitable objectives. Many of these hybrid trusts receive donations through traditional means such as donation boxes, especially at temples, gurudwaras, or shrines, where knowing the identity of the donor is practically impossible.

The old law under Section 115BBC of the 1961 Act acknowledged this reality and provided a broader exemption. The committee called for the reintroduction of those older safeguards in the new legislation to recognise the unique nature of India's religious-charitable institutions.

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Clarify Rules for NPOs

Additionally, the panel expressed concern over the move to tax “receipts” of NPOs rather than their “income.” According to the committee, taxing entire receipts would violate the generally accepted principle of taxing only real income, which is income after expenses.

The current language could lead to legitimate donations or grants meant for charitable activities being taxed regardless of whether the NPO has made any surplus. To fix this, the panel advised that the term “income” be reinstated so that only net earnings are taxed, not every rupee received by such organisations.

Why These Changes Matter

While the bill's objective of simplifying language was appreciated, the committee pointed out several areas where definitions were vague or inconsistent. It warned that unclear legal language, especially regarding the classification and taxation of different types of trusts or donations, could create confusion for taxpayers and room for misuse or litigation.

The committee stressed the importance of both clarity and precision, urging the Finance Ministry to tighten loose ends in the draft and ensure consistency with past precedents that have worked well.