Govt plans to amend refund provision in new Income Tax Bill, 2025

Section 433 of the new IT Bill, 2025, states that a refund must be claimed by filing a return - regardless of whether it is belated

In a relief to taxpayers, the government is likely to amend the controversial refund provision in the new Income Tax (I-T) Bill, 2025, which denies refunds if the I-T return isn filed after the due date, according to an official in the finance ministry.

 

Section 433 of the new I-T Bill states a refund must be claimed by filing a return regardless of whether it is belated. In contrast, Section 263(1)(a)(ix) specifies that to qualify for a refund, the return must be filed on or before the due date, creating a contradiction.

 

“Experts and stakeholders have raised concern over the refund provision in the draft Bill. That was a drafting error, which will be rectified,” a government official told Business Standard. “The provisions related to refund  will remain the same as in the current law,” the official added.

 

Union Finance Minister Nirmala Sitharaman had introduced the new I-T Bill, 2025, on February 13. After that a select committee constituting 31 members of Parliament (MPs) was formed to examine it.

 

In March, the Central Board of Direct Taxes (CBDT) had invited suggestions from stakeholders and they were to be forwarded to the select committee. 

 

The suggestions were aimed at enhancing clarity and reducing the compliance burden on taxpayers.

 

According to the official, the select committee will submit its report on the first day of the monsoon session of Parliament.  

 

“The ministry will analyse the recommendations made by the select committee, after which changes will be incorporated in the Bill,” the official added. Once passed by Parliament, the new law may  take effect from April 1, 2026.

 

An email sent to the ministry remained unanswered till the time of going to press. 

 

The due date for filing I-T returns varies from taxpayer to taxpayer. For most individual taxpayers, including salaried employees and Hindu undivided families (HUFs) not requiring audit, the deadline is typically July 31 of the assessment year. For businesses, professionals, and companies whose accounts are subject to tax audit, the deadline extends to October 31. A belated or revised return may be filed until December 31, though late filing may cause penalties and restrict benefits such as the carry-forward of losses.

 

“While the CBDT has maintained that there are no policy changes in the provisions related to refunds in the new I-T Bill, 2025, it is a fact that Section 263(1)(a)(ix) requires that returns must be filed within the due date to claim a refund,” said Vivek Jalan, partner, Tax Connect Advisory Services. 

 

“But Section 433 requires a refund be sought only while filing a return, which makes the issue more intriguing. This would compel assessing officers to disallow refunds if the returns are delayed. In the current tax law, even when an individual submits a belated return by December 31 of the assessment year the person can still claim for a refund for any excess tax paid,” Jalan added.

 

According to Jalan, such provisions will create hardship for taxpayers who miss the due date. The ministry, while finalising the draft I-T Bill, 2025, should tweak this provision so that there is no litigation on this, which will affect taxpayers.

 

In the same vein, Punit Shah, partner, Dhruva Advisors, said: “Interplay between Sections 263 and 433 has created confusion in respect of the claim of tax refunds on belated or revised tax returns. This cannot be the intention of the government and appears to be a drafting error. It would be appropriate for the government to amend the relevant provisions to allow refund claims even in the case of belated or revised tax returns.”