Delhi High Court Seeks Centre's Response On PIL Seeking Automatic TDS Refunds For Non-Taxable Individuals

The Delhi High Court on Wednesday sought the response of the Union Government and the Central Board of Direct Taxes (CBDT) on a public interest litigation seeking an automatic mechanism to refund Tax Deducted at Source (TDS) to individuals whose income falls below the taxable limit without requiring them to file income tax returns (ITRs).

A division bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela issued notice on the petition filed by petitioner-in-person Aakash Goel and directed the respondents to file their reply. The matter will next be heard in October.

The plea argues that the existing framework forces lakhs of senior citizens, blue-collar workers and other low-income individuals to file ITRs only to recover TDS deducted from income that is otherwise not taxable. According to the petitioner, this allows the State to retain money despite there being no tax liability.

The petitioner has argued, "The requirement of filing an Income Tax Return (“ITR”) as a precondition for refund, even in cases where the assessee is otherwise not mandatorily required to file a return, operates as an excessive and disproportionate procedural burden. For small refunds, the cost of compliance may exceed the refund itself, thereby rendering the remedy illusory and defeating the legitimate expectations underlying a welfare-oriented tax administration. Such a burden also has the effect of depriving a person of property except by authority of law, contrary to Article 300A"

"The impugned insistence on return filing, irrespective of the actual taxability of the recipient, defeats the principles of fairness, proportionality, and non-arbitrariness embedded in Articles 14, 265, and 300A," it added.

Relying on the Income Tax Department's Annual Return Statistics for Assessment Year 2023-24, the petitioner claims that nearly 2.35 crore individuals had TDS credits but did not file ITRs.

The petition further states that 8.59 crore individuals had TDS credits below ₹5,000, making the cost of filing returns, including dependence on intermediaries and digital compliance, economically irrational for many taxpayers.

It describes this as a "compliance trap" that effectively converts the refund process into a "procedural forfeiture."

The plea challenges Section 433 of the Income Tax Act, 2025, which requires a return to be furnished before a refund can be granted. It argues that, for persons who are otherwise not legally required to file returns, the provision operates as a "bureaucratic toll-gate" by imposing a digital-only compliance burden solely to recover money that already belongs to them.

According to the petitioner, this results in a de facto deprivation of property and defeats the government's stated objective of "Ease of Living."

The petitioner further argues that the Income Tax Department already possesses sufficient information through PAN-linked databases, the Annual Information Statement (AIS), Form 26AS, and the Non-Filer Monitoring System (NMS) to identify individuals with no tax liability.

It contends that while the government has demonstrated sophisticated technological capabilities to identify potential tax evaders and integrate databases for other welfare schemes, it has failed to deploy the same technology to automatically refund excess TDS to non-taxable persons. According to the petitioner, this selective use of technology violates Article 14 of the Constitution.

The petition also invokes Articles 265 and 300A of the Constitution. It contends that where no tax is payable, continued retention of TDS lacks the authority of law under Article 265 and amounts to an unreasonable deprivation of property protected under Article 300A.

It further argues that forcing citizens to incur expenses or possess digital literacy merely to reclaim their own money disproportionately affects senior citizens, daily wage earners, and other vulnerable groups, rendering the existing mechanism arbitrary and exclusionary.

Among the principal reliefs sought, the petitioner has asked the high court to read down Section 433 of the Income Tax Act, 2025, so that the requirement of furnishing a return for obtaining a refund applies only to persons who are otherwise statutorily required to file returns under Section 263.

The PIL also seeks directions to immediately process unclaimed TDS refunds, particularly those of up to ₹5,000 for the last three assessment years, without insisting on ITR filing. It further seeks the establishment of a permanent suo motu or automatic TDS refund mechanism for future years for eligible non-taxable individuals.

For Petitioner: Petitioner-in-person Aakash Goel