The Select Committee has recently submitted an extensive report to Parliament on 21 July, signaling a significant shift in India’s tax legislation. This report is a crucial milestone in the journey to replace the outdated Income Tax Act of 1961 with the upcoming New Income Tax Bill, 2025. Spanning over 4,500 pages, the report features a total of 285 recommendations intended to streamline, clarify, and simplify the overall tax process for the general public. This comprehensive review addresses several long-standing challenges that taxpayers face every year while filing their Income Tax Returns (ITRs). The intention behind these sweeping reforms is to enhance the user experience, reduce penalties for small lapses, and ensure a fairer and more efficient tax administration system.
One of the most taxpayer-friendly recommendations in the report involves eliminating penalties for individuals who file income tax returns solely for the purpose of claiming a refund. Currently, if someone misses the tax filing deadline—even when they are filing only to retrieve a refund—they can be penalized with a fine of up to ₹1,000. This rule has long been criticized for being harsh on low-income earners and salaried employees who do not owe taxes but must file to reclaim deducted amounts. The committee suggests that individuals whose total income falls below the taxable limit and who are filing only to claim a refund should not face any penalties, even if they miss the deadline. This proposal, if enacted, could offer significant relief to lakhs of small taxpayers and make the tax process more compassionate and inclusive.
Another area the report seeks to reform is taxation on income from house property. As per existing provisions, taxpayers can claim a 30% standard deduction on their rental income after municipal taxes are deducted. However, the rule is not explicitly mentioned in the legal text, leading to confusion among many taxpayers. The committee proposes to clearly codify this standard deduction in the new law, leaving no room for ambiguity. Furthermore, the report recommends expanding the benefit of home loan interest deductions to cover not just self-occupied houses, but also properties that are rented out. Currently, such deductions are limited, leaving landlords and property investors with a higher tax burden. If these changes are adopted, they would offer more tax-saving opportunities for middle-class individuals who invest in real estate.
The report also targets the long-standing issue of delayed tax refunds, particularly those related to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). Many taxpayers have voiced frustration over how long it takes to receive refunds, often due to procedural bottlenecks and a lack of transparency. The committee is pushing for a more efficient, timely, and user-friendly refund process. The Central Board of Direct Taxes (CBDT) is also reportedly drafting new rules under a policy called “Enforcement with Empathy,” which aims to reduce bureaucratic red tape and increase trust between tax authorities and honest taxpayers. If implemented effectively, these measures could drastically improve the experience of dealing with tax refunds.
As of now, the government is carefully reviewing the committee’s recommendations, and the final version of the New Income Tax Bill is expected to be tabled and possibly passed during the Budget session next year. The ultimate goal behind these reforms is to modernize the Indian tax system, making it more digital-first, transparent, and friendly for the common citizen. These proposed updates signal a clear shift toward a more equitable and efficient taxation regime that acknowledges the difficulties faced by everyday taxpayers. For salaried workers, small business owners, and property investors, these reforms could mark a significant improvement in their annual interactions with the tax system.
