Income Tax Bill 2025: No Penalty on Late TDS Filing Under the New Income Tax (No 2) Bill

The Indian tax regime is set for a major transformation with the passing of the Income Tax (No 2) Bill 2025, replacing the 6 decade old Income Tax Act of 1961. The Bill promises to make tax laws S.I.M.P.L.E - Streamlined, Integrated, Minimised litigation, Practical, Learn and adapt, and Efficient.

One of the most notable taxpayer friendly changes is the removal of penalties for late TDS (Tax Deducted at Source) filing, offering much needed relief to individuals, MSMEs, and businesses.

Will There Be a Penalty for Late TDS Filing?

Under the new provisions, there will be no financial penalty if a taxpayer files their TDS returns late.

Earlier:

Late filing of TDS returns attracted penalties and interest under the old regime, often burdening businesses for minor or genuine delays.

Now:

The penalty clause for late submission has been removed, reducing compliance stress and enabling smoother tax administration.

Why This Matters?

• Reduces unnecessary litigation over minor delays
• Eases the compliance process for small businesses and startups
• Recognises genuine operational challenges in meeting deadlines
• Promotes a trust based approach to tax administration

Other Key Changes in the New Income Tax Bill 2025

1. Relief on Tax Refunds: Taxpayers will now be able to claim refunds even if they file their returns after the due date.
2. Nil TDS Certificate:Individuals with no tax liability can apply for a nil deduction certificate in advance. This provision applies to both Indian residents and non resident taxpayers.
3. Commuted Pensions: The Bill now explicitly allows tax deductions on lump sum pension payments (commuted pensions) for eligible taxpayers. This applies to pensions from specified sources such as the LIC Pension Fund.
4. Inter Corporate Dividends: The deduction for dividends a company earns from shares in another company (Section 80M) has been restored. This had been omitted in the earlier draft, especially for companies opting for the 22% corporate tax rate. The omission had raised concerns about double taxation in multi tier corporate structures.

Read More: ITR Filing FY25: Do You Need to Pay Tax on Inherited Gold Jewellery?

Conclusion

The “No Penalty on Late TDS Filing” provision signals a shift towards a more taxpayer friendly and less punitive tax system. It removes unnecessary stress for honest taxpayers while keeping compliance intact.

With other supportive measures in the Income Tax (No 2) Bill, the reform aims to simplify India’s tax laws and make them more practical for individuals and businesses alike.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.