Par Panel for Tax Exemptions on Anonymous Donations to NPOs, TDS Refund Without Penalty

A Parliamentary panel, headed by BJP leader Baijayant Panda, has favoured continuing tax exemption on anonymous donations made to religious-cum-charitable trusts in the new Income Tax Bill, saying any removal would have an adverse impact on not-for-profit organisations.

The 31-member Select Committee of the Lok Sabha that examined the new Income Tax Bill, 2025, also suggested allowing taxpayers to claim TDS refund even after the ITR filing due date without paying any penal charges. The Committee has recommended changes in the Income Tax Bill, 2025, which will replace the six-decade-old Income Tax Act, 1961.

The 4,575 page report, which was tabled in the Lok Sabha on Monday, also made suggestions for sweeping changes in the way the new Income Tax bill, 2025, was to treat income of non-profit organisations (NPOs), while commending tax department's move of replacing the dual concepts of "previous year" and "assessment year" with a single, unified term: "tax year" "The adoption of a single, consistent 'tax year’ streamlines tax period references throughout the legislation, making the law more accessible and easier to understand," the report said.

With regard to NPOs, the government in the new bill has exempted from tax anonymous donations received by purely religious trusts. However, such donations received by a religious trust that may also have other charitable functions, like running hospitals, and educational institutions, will be taxed as per law.

Clause 337 of the Income Tax Bill, 2025, proposed a flat 30% tax on anonymous donations received by all registered NPOs, with a narrow exemption extended only to those established wholly for religious purposes -- a "significant divergence" from the existing I-T Act.

The existing law under Section 115BBC of the Income-tax Act, 1961, provided a more comprehensive exemption: anonymous donations were not taxed if received by any trust or institution created or established wholly for religious and charitable purposes, unless such a donation was specifically directed towards a university, educational institution, hospital, or medical institution run by that same trust or institution.

"The committee strongly urge the reintroduction of a provision analogous to the explanation found in Section 115BBC of the 1961 Act," the report said.

While the Bill's stated aim is textual simplification, the committee observe a critical omission concerning religious-cum-charitable trusts, which could have substantial adverse impacts on a large segment of India's NPO sector, it noted.

Further, the Committee also opposed taxing 'receipts' of NPOs as it contravenes the principle of real income taxation under the Income Tax Act. It recommended reintroducing the term 'income' to ensure only net income of NPOs is taxed.

The Committee expressed "strong concern" and said that taxing "receipts" would mean including capital recoveries or gross inflows, which do not necessarily represent net income of an NPO.

For the purposes of taxation and accumulation, the Committee firmly believe that rules should ideally apply to net income, not gross receipts and suggested modification in Clause 335 of the proposed Bill.

With regard to refund of TDS refund claims by individuals who are otherwise not required to file tax returns, the committee suggested removal of the provision in the Income Tax Bill that makes it mandatory for an assessee to file I-T returns within the due date.

The committee observe that the current mandatory requirement to file a return 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. The committee, therefore, recommend to remove sub-clause (1)(ix) from Clause 263 to provide flexibility for allowing refund claims in cases where the return is not filed in due time," it noted.

Parliamentary committee reports are recommendatory in nature and the government may choose to accept them in part or in full.

Commenting on the report, BDO India Partner, Tax and Regulatory Services, Preeti Sharma said the report suggests a total of 566 observations / recommendations for change. Now the Lok Sabha has to debate the recommendations and identify the changes that are required in the current Bill to make it futuristic and relevant for common taxpayers.

Nangia Andersen LLP, M&A Tax Partner, Sandeep Jhunjhunwala said the Committee has suggested modernising definitions such as "capital asset" and "infrastructure capital company", clarifying property-related deductions, and reinforcing the "actual payment" rule for business expenses. It has also recommended procedural safeguards such as making penalties for non-maintenance of books discretionary and permitting refund claims even where returns are not filed on time.