Par Panel on New Income Tax Bill Suggests Changes in TDS Refund Claims, Taxation of Trusts

A Parliamentary panel, which examined the new Income Tax Bill, on Monday suggested that the Finance Ministry should allow individual taxpayers to claim TDS refunds by filing I-T returns after the due date without penalty, and exempt anonymous donations made to religious-cum-charitable trusts from taxation.

BJP Member Baijayant Panda, who headed the Select Committee of the Lok Sabha to scrutinise the Income Tax Bill, 2025, tabled the report in the Lower House.

The Committee has recommended changes in the Income Tax Bill, 2025, which will replace the six-decade-old Income Tax Act, 1961.

The panel suggested that the ambiguity with regard to Non-Profit Organisations (NPOs), especially those with mixed charitable and religious objectives, for taxing anonymous donations should be removed.

The Committee 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.

Observing that there is a "significant divergence in the treatment of anonymous donations" to registered NPOs, the committee suggested that such donations should be exempt for religious as well as charitable trusts because many such entities have a hybrid nature.

"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.

The 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.

This marks a stark departure from the current Section 115BBC of the Income-tax Act, 1961. The existing law 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 existing provision legitimately recognises these "religious-cum-charitable" entities as a distinct and valid class eligible for concessions on anonymous donations, understanding that such organisations often receive contributions through traditional means (like donation boxes) where donor identification is practically impossible.

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

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.