The draft Income Tax Bill 2025, currently under review by a parliamentary committee, is expected to bring notable changes to India’s direct taxation framework. In its interim recommendations, the panel has proposed key amendments focusing on easing the TDS refund process and offering greater clarity and relief for religious and charitable institutions. These proposals are part of the government's broader effort to simplify the tax system and encourage voluntary compliance.
One of the major suggestions put forward involves the Tax Deducted at Source mechanism. Taxpayers often face delays in receiving refunds of excess TDS paid, particularly in cases involving freelance professionals, pensioners, and individuals with variable income. The panel has called for a more flexible and automated system that processes refunds efficiently and promptly. It has also suggested that the tax department introduce periodic reconciliation to avoid discrepancies that lead to refund delays.
Another significant recommendation centers around religious and charitable trusts, which are currently governed by multiple conditions under Sections 11 and 12 of the Income Tax Act. Many of these organisations report challenges in claiming exemptions due to complex filing procedures and stringent audit requirements. The panel has urged the government to streamline these processes, provide better clarity on eligibility norms, and reduce the administrative burden for smaller institutions that operate with limited resources.
The report further recommends a clear distinction between commercial and non-commercial activities carried out by these trusts. According to the panel, incidental commercial activities undertaken to support charitable goals should not automatically disqualify an institution from receiving tax benefits. This is expected to benefit educational and healthcare organisations that generate limited revenue while serving public welfare objectives.
To ensure better compliance and transparency, the panel has also proposed the use of technology for real-time monitoring and digital filing of returns for such trusts. It advised the Central Board of Direct Taxes (CBDT) to develop user-friendly platforms to guide trusts through the tax exemption process and compliance reporting.
The panel acknowledged that over the years, India’s charitable sector has played a vital role in supporting healthcare, education, rural development, and disaster relief. Reducing tax friction for these entities can encourage more philanthropic contributions and strengthen community welfare programs.
In addition, the committee has suggested that the government evaluate the impact of the current TDS structure on small businesses and salaried individuals. It has called for a potential review of thresholds, rates, and the documentation required for filing claims to ensure that the tax system remains inclusive and fair.
The Income Tax Bill 2025 is expected to be introduced in Parliament later this year. If accepted, these recommendations could represent one of the most impactful reforms to the country’s tax administration in recent times. Stakeholders from across sectors have welcomed the proposed changes and are optimistic that they will reduce litigation and improve taxpayer experience.
