If Parliament accepts the key recommendations of the Select Committee on the Income-Tax Bill, 2025, late filers may soon find some relief. The objective of the Committee is to avoid unnecessary administrative tax burdens on individual taxpayers (primarily salaried employees, individuals who work in small business enterprises), but allow expenses to be deducted even if the income tax return is turned in after the due date.

We will review the amendments that are being proposed, why it is important, and how it may affect you.

Whats the Current Rule for Late Tax Returns?

Under the Income-tax Act, 1961, if you miss the deadline to file your return, you lose some key deductions. These fall under:

Heading C of Chapter VIII this includes income-linked deductions such as:

• Royalty from patents

• Employment generation

• Profits from power generation, etc.

However, common deductions under Section 80C (LIC, PPF, ELSS), 80D (Health Insurance), 80E (Education Loan Interest), or 80G (Donations) are not affected, even if the return is late.

What Did the Draft Income-Tax Bill 2025 Propose?

The new Bill draft proposed Clause 270(1)(a)(v), which would disallow deducting all deductions such that taxpayers could not claim (for returns filed after the due date). This would be unpleasant for taxpayers, especially taxpayers awaiting refunds as a result of excess TDS deductions.

Deductions at risk included:

This proposal caused concern across the board from tax professionals to salaried individuals.

Why the Committee Objected

The Lok Sabha Select Committee under the chair of Baijayant Panda identified this clause as inappropriate, particularly with the trust of taxpayers who may lose a due date because of substantial grounds. Their report, produced on July 21, 2025, recommends limiting the disallowance only to Heading C, like the 1961 Act provides.

"This proposed clause imposes an excessive burden on the average taxpayer for minor delays that could be unintentional or unavoidable," the Committee noted in its report.

Whats Now Being Recommended

The Committee proposes:

• Keep the restriction only for Heading C deductions.

• Allow all other Chapter VIII deductions (like 80C, 80D, 80G) even if the return is filed late.

If accepted, this recommendation would protect millions of taxpayers from losing out on tax benefits due to minor procedural delays.

Real-Life Scenario: What It Means for Ramesh

Ramesh, a salaried employee in Bengaluru, usually files his ITR on time. But due to a health emergency in 2025, he misses the deadline.

Under the draft Bill: He would have lost deductions under 80C and 80D increasing his tax liability by 20,00030,000.

Under the Committees recommendation: He retains those deductions despite the delay and still gets his refund.

This change could be life-saving for many middle-class taxpayers who juggle jobs, EMIs, and lifes uncertainties.

Policy Timeline

Expert Insights

CA Ankur Jain, Partner at a leading Delhi-based tax firm:

"Denying all deductions for a missed deadline was always going to face pushback. This recommendation restores balance between compliance and fairness."

Anita Rao, Tax Consultant:

"This offers a much-needed cushion for genuine taxpayers. Not everyone misses deadlines out of negligence."

Frequently Asked Questions

Q1: If I file after the deadline, will I still get my refund?

Yes if the committees recommendation is accepted, you can still claim your refund, especially if it results from excess TDS.

Q2: Which deductions are affected under Heading C?

Only deductions linked to income from royalties, employment generation, etc.

Q3: Does this mean late filing has no consequences?

No. You may still have to pay late filing fees and interest under Sections 234F and 234A. But you wont lose major deductions under 80C, 80D, or 80G.

Key Takeaways

• Whats at stake? Tax deductions for late filers.

• Whats proposed? Blanket disallowance of all deductions under Chapter VIII.

• Whats recommended? Restrict disallowance only to Heading C, as per the current law.

• Why it matters? Protects refunds and tax benefits for genuine taxpayers.

• Who benefits? Salaried individuals, small business owners, and anyone who misses the deadline unintentionally.

What Should You Do as a Taxpayer?

• File on time to avoid penalties.

• But if youve missed it, dont panic you may still be able to claim major deductions.

• Stay updated during the Monsoon Session 2025 for final changes to the law.

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