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The Delhi High Court on Wednesday sought the response of the Central Government on a public interest litigation (PIL) seeking the introduction of an automatic refund mechanism for Tax Deducted at Source (TDS) in cases where individuals have no income tax liability and are not otherwise required to file Income Tax Returns (ITRs).
A Division Bench comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia issued notice on the petition filed by Aakash Goel and granted time to the Centre to file its reply. The matter has been listed for further hearing on November 6. The PIL challenges the requirement under Section 433 of the Income Tax Act, 2025, which makes the filing of an Income Tax Return mandatory for claiming a refund, even where the taxpayer has no tax liability and would otherwise not be required to file a return. According to the petition, the issue affects a large number of taxpayers whose employers or banks deduct TDS during the financial year, but whose final taxable income falls below the exemption limit after accounting for deductions, exemptions or other eligible benefits. Despite having no tax payable, these individuals are presently required to file an ITR solely to obtain a refund of the tax already deducted. The petitioner has urged the High Court to read down Section 433 to the extent that it mandates ITR filing for refund claims by persons who are otherwise exempt from filing returns. He has also sought directions to the Union Government and the Central Board of Direct Taxes (CBDT) to implement an automatic or suo motu TDS refund mechanism for such taxpayers. The plea contends that the existing system disproportionately affects senior citizens, blue-collar workers and other low-income individuals, many of whom either lack the resources or the technical ability to file income tax returns merely to recover relatively small refund amounts. It argues that the government already possesses all the necessary information through PAN, Aadhaar, Form 26AS and TDS records and can therefore process refunds automatically without insisting on a separate compliance requirement. Relying on official Income Tax Department statistics, the petition claims that around 2.35 crore individuals had TDS credits but did not file income tax returns, despite many of them having no tax liability. It argues that the mandatory ITR requirement effectively prevents many eligible taxpayers from recovering money that rightfully belongs to them. The petition further submits that while the Income Tax Department has developed sophisticated technology to identify tax evasion and monitor non-filers, a similar technology-driven system has not been adopted for returning excess TDS to individuals who owe no tax. It contends that the continued retention of such amounts, despite the absence of any tax liability, is arbitrary and unconstitutional. The PIL also refers to the Parliamentary Select Committee's recommendation on the Income Tax Bill, 2025, which had suggested removing the mandatory return-filing requirement for claiming refunds, describing it as burdensome for small taxpayers. According to the petitioner, the recommendation was not incorporated in the final legislation. (ANI)
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