Possible Changes in Income Tax Refund Rules Under Consideration

The government is likely to revise certain provisions in the current Income Tax Act that prevent taxpayers from receiving interest on refunds issued after a specific time limit. At present, if a refund is processed after the prescribed time, taxpayers are not entitled to interest on the delayed payment. The Finance Ministry’s expert committee is reviewing the matter, and changes may be included in the upcoming Direct Tax Code under the proposed Budget 2025.

 

The recommendation is part of a broader set of 285 proposed amendments to streamline tax administration, enhance transparency, and address taxpayer grievances. Officials believe that relaxing these rules will provide relief to taxpayers who often face delays in receiving refunds due to procedural backlogs.

 

One significant proposal involves amending Section 80P of the Income Tax Act, which grants tax benefits to cooperative societies. The proposed change would extend this benefit to certain companies receiving inter-corporate dividends, thereby reducing their overall tax liability.

 

Another key suggestion focuses on easing the process for obtaining “nil deduction” certificates for businesses, ensuring faster clearance for companies that do not have taxable income. This measure is aimed at preventing unnecessary tax deductions and facilitating smoother cash flow for businesses.

 

The expert committee has also suggested improving the ease of filing and processing tax returns, strengthening the legal framework for timely refunds, and adopting digital-first approaches to reduce manual intervention.

If implemented, these changes could significantly improve the efficiency of India’s tax administration system, benefiting both individual taxpayers and corporate entities.