A Parliamentary Select Committee examining the draft Income Tax Bill, 2025 has recommended key amendments aimed at easing the compliance burden on small taxpayers and safeguarding the interests of religious-cum-charitable non-profit organisations (NPOs).
The report, tabled in the Lok Sabha on July 22, 2025, by BJP MP Baijayant Panda, who chaired the panel, called for the removal of penalties on late IT return filings when claiming TDS refunds and urged the Finance Ministry to exempt anonymous donations received by religious-cum-charitable trusts from taxation.
Relief for Small Taxpayers Claiming TDS Refunds
The Committee recommended that individuals should be allowed to claim TDS refunds even if they miss the IT return filing deadline, particularly in cases where the taxpayer is not otherwise liable to file a return.
It opposed Clause 263(1)(ix) of the proposed Income Tax Bill, which mandates filing returns within the due date to claim refunds, stating that such provisions could inadvertently penalise low-income individuals and small taxpayers whose incomes are below the taxable threshold but who have tax deducted at source (TDS).
"In such cases, the law should not compel return filing merely to avoid penal provisions," the report said, recommending the deletion of the clause to ensure flexibility.
Also Read: Lok Sabha Select Committee Submits Key Recommendations on Income Tax Bill, 2025
Anonymous Donations to Hybrid Religious-Charitable Trusts
Another major recommendation concerned Clause 337 of the draft Bill, which proposes a flat 30% tax on anonymous donations received by registered NPOs, exempting only those established wholly for religious purposes.
The Committee warned that this provision overlooks the hybrid nature of many NPOs, especially those engaged in both religious and charitable activities, which are currently recognised and exempted under Section 115BBC of the Income Tax Act, 1961.
It urged the Finance Ministry to restore the exemption for religious-cum-charitable trusts, as donations received through traditional methods like donation boxes often lack donor identification, making them susceptible to unfair tax liabilities.
"There is a critical omission concerning religious-cum-charitable trusts, which could adversely impact a large segment of India's NPO sector," the report said, recommending the reintroduction of language similar to Section 115BBC to preserve tax relief for these hybrid organisations.
Moving Towards a Simplified Yet Inclusive Tax Framework
While acknowledging the Bill's broader objective of modernising and simplifying India's income tax law, the panel stressed the need to ensure that textual clarity does not come at the cost of practical and social realities.
The Income Tax Bill, 2025, aims to replace the decades-old Income Tax Act, 1961, and its review by the committee marks a significant step toward ensuring the legislation remains fair, inclusive, and administratively practical.
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