Soon, No ITR Needed Just to Claim a TDS Refund: Here’s What the Income Tax Bill 2025 Proposes

If you have ever had tax deducted on bank interest or salary even when your total income falls below the taxable limit, you have likely had to go through the rigmarole of filing an Income Tax Return (ITR) just to get your money back. But this might soon change.

A proposal under the new Income Tax Bill (ITB) 2025 recommends that individuals who fall below the taxable income threshold, but have paid Tax Deducted at Source (TDS), should be allowed to claim refunds without filing a full ITR.

Instead, they could simply fill out a basic form, a move that could spare millions of small taxpayers the hassle and potential legal risks of missing an ITR deadline.

According to some media reports, citing government functionaries that are directly familiar with the Bill, a recommendation to bring this change has been made by the Select Committee on the ITB 2025.

What is changing and why?

As things stand today, if your total income is below the tax exemption limit but TDS has been cut, for instance, by your bank on a fixed deposit interest, you are still required to file a return to claim that money back.

But now, a Parliamentary Select Committee reviewing the Income Tax Bill 2025 has flagged how this mandatory filing can inadvertently put law-abiding, low-income individuals at risk. Delays or errors in filing, even when there is no actual tax liability, can trigger penalties or even prosecution.

“The panel felt that this was unfair to small taxpayers. If someone has no taxable income, the law should not punish them simply for missing a refund-linked return,” an official told Hindustan Times.

Instead, the Central Board of Direct Taxes (CBDT) is being advised to create a simplified refund process linked to Form 26AS, a consolidated tax credit statement that tracks TDS and other tax-related details.

How This Will Help Taxpayers

• No ITR needed for refund: A simple form could replace the ITR filing process for those with income below the exemption limit.

• Less paperwork: Fewer compliance burdens for retirees, homemakers with FDs, students, and others with minimal income but some TDS deduction.

• Avoid penalties: Helps prevent technical non-compliance from turning into legal trouble.

• Time saver: Especially useful for senior citizens and others who are not tech-savvy or don’t have access to tax professionals.

For example, under the new tax regime, a salaried individual with Rs 12.75 lakh in annual income could end up paying no tax after deductions. But unless all documents are correctly submitted to the employer, TDS might still be cut, triggering a refund claim. This is where the proposed simplification kicks in.

What else is in the Bill?

The Select Committee reviewed the Bill clause by clause over 36 meetings and has submitted 285 recommendations. Among them some key recommendations included:

• The bill specifically allows tax officials to access digital devices during investigations, adding clarity to what was a grey area under the 1961 Act.

• It has proposed concessions for non-residents, foreign entities operating liaison offices in India may now get eight months (up from 60 days) to file required statements.

• Despite suggestions that other professionals be allowed to conduct tax audits, the panel backed the Chartered Accountants Act as the guiding framework.

• Some old rules have also been retained for continuity. Circulars and clarifications issued under the current income tax law will continue to apply under equivalent clauses of the new Bill.

When will the new rules kick in?

If passed, the new Income Tax Bill will come into effect as an Act from April 1, 2026. It will replace the current 1961 Act, trimming the size of the law by almost half and removing outdated terminology like "assessment year" in favour of a straightforward "tax year".

The goal, Finance Minister Nirmala Sitharaman said in her 2025 Budget speech, is to create a clearer, cleaner, and more predictable tax system, both for taxpayers and for the administration.