Delhi HC seeks Centre’s reply on PIL for automatic TDS refunds

The Delhi High Court has sought the Union government’s response to a PIL demanding an automatic refund mechanism for excess Tax Deducted at Source (TDS) in cases where individuals are not required to file income tax returns. The plea argues that mandatory ITR filing for refunds disproportionately burdens senior citizens and low-income earners, despite their incomes being below the taxable threshold.

New Delhi: The Delhi High Court on Wednesday sought the response of the Union government on a public interest litigation (PIL) seeking the implementation of an automatic refund mechanism for excess Tax Deducted at Source (TDS) in cases where individuals are not otherwise required to file income tax returns.

A division bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia issued notice to the Union of India, the Department of Revenue, Ministry of Finance, and the Central Board of Direct Taxes (CBDT), directing them to file their response.

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The matter has been listed for further hearing on November 6.

The PIL, filed by petitioner-in-person Aakash Goel, contended that nearly two crore individuals, primarily senior citizens and low-income earners whose income falls below the taxable threshold, continue to face hardship in recovering excess TDS because the law mandates filing an Income Tax Return (ITR) before any refund can be processed.

The petition argued that the existing framework creates a “constitutional paradox”, claiming that while the government has developed advanced technological systems to collect taxes, it has failed to establish an equally efficient mechanism for returning excess tax deducted from persons with no tax liability.

It submitted that the mandatory ITR filing requirement under Section 433 of the Income Tax Act, 2025, effectively acts as a “bureaucratic toll-gate”, making it economically irrational for many individuals to seek refunds, particularly where the amount involved is small.

According to the plea, the financial and digital costs of filing returns often exceed the refund amount itself, resulting in a “procedural forfeiture” that disproportionately affects blue-collar workers, senior citizens and other low-income individuals.

The PIL further claimed that while the Income Tax Department efficiently uses technology for compliance measures, including identifying potential non-filers through the Non-Filer Monitoring System (NMS), it has not adopted the same technological capabilities to automatically refund excess TDS to individuals whose tax records already establish that they have no tax liability.

Seeking judicial intervention, the petitioner has prayed for directions to the Union government and the CBDT to implement an automatic or suo motu refund mechanism for non-filing individuals and to read down the provision mandating ITR filing for claiming such refunds.

The plea also relied on official data to contend that around 2.35 crore individuals with TDS credits did not file returns despite having refundable amounts and argued that requiring them to undergo a digital compliance process defeats the government’s stated objective of “Ease of Living”.

Earlier, in January 2025, the Supreme Court had declined to entertain a PIL seeking the complete scrapping of the TDS system under the Income Tax Act.

A Bench headed by the then Chief Justice of India (CJI) Sanjiv Khanna had dismissed the petition while granting liberty to the petitioner to approach the appropriate High Court. The petition had challenged the TDS regime as arbitrary and unconstitutional, alleging that it unfairly shifted the sovereign responsibility of tax collection to private citizens and imposed disproportionate compliance burdens through technical procedures, penalties, and prosecution for even inadvertent errors.