Clause 264 Scheme for submission of returns through tax return preparers.

Income Tax Bill, 2025

Introduction

Clause 264 of the Income Tax Bill, 2025 introduces a statutory framework for the submission of income tax returns through tax return preparers (TRPs), replacing and updating the existing Section 139B of the Income Tax Act, 1961. Both provisions aim to facilitate compliance for taxpayers, particularly those who may lack the expertise or resources to independently navigate the complexities of income tax return filing. The legislative intent behind these provisions is to institutionalize a mechanism that enables certain classes of taxpayers to avail professional assistance in return preparation, while simultaneously ensuring regulatory oversight and accountability of TRPs.

This commentary provides a detailed analysis of Clause 264, elucidates its objectives, interprets its key provisions, and examines its practical implications. A comparative analysis is then undertaken with Section 139B, highlighting substantive changes, continuities, and the broader policy rationale. The discussion also explores potential areas of ambiguity and suggests avenues for reform or clarification.

Objective and Purpose

The primary objective of Clause 264, akin to its predecessor Section 139B, is to provide a statutory scheme for the submission of income tax returns through authorized intermediaries-Tax Return Preparers. The rationale is rooted in promoting voluntary compliance, reducing errors in return filing, and extending the reach of the tax administration to segments of the population that may otherwise find the tax system inaccessible or overly complex.

Historically, the introduction of TRPs u/s 139B (via Finance Act, 2006) was a policy response to the need for simplifying tax compliance for small taxpayers, non-corporate entities, and individuals not subject to audit requirements. The move was also aligned with the government's digitization and taxpayer facilitation initiatives. Clause 264 seeks to modernize this framework, possibly in light of technological advancements, evolving taxpayer profiles, and lessons learned from the operationalization of the earlier scheme.

Detailed Analysis of Clause 264 of the Income Tax Bill, 2025

1. Enabling Provision and Scope

Clause 264(1) empowers the Central Board of Direct Taxes (CBDT) to make a scheme for furnishing returns of income through TRPs. The scheme, once notified, may:

• Enable any specified class or classes of persons to prepare and furnish returns through an authorized TRP.
• Be made irrespective of the provisions of section 263.

The language is permissive ("may enable"), granting the Board discretion in identifying eligible classes and operationalizing the scheme. The non-obstante reference to section 263 (which deals with revision of orders prejudicial to revenue) ensures that the scheme's operation is independent of the powers of revision u/s 263, thus ring-fencing the return preparation process from subsequent revisional proceedings.

2. Definitions

Clause 264(2) provides statutory definitions:

• Tax Return Preparer: An individual (excluding those referred to in section 515(3)(a)(ii) or employees of specified persons) authorized under the scheme.
• Specified class or classes of persons: Any person, other than a company or a person whose accounts are required to be audited u/s 63 or any other law, who is required to file a return under the Act.

The exclusion of companies and audit-requiring entities narrows the scope to individuals, HUFs, and other non-corporate, non-audited entities, reflecting a policy choice to target those most likely to benefit from TRP assistance.

3. Notification and Oversight

Clause 264(3) mandates that every notification for the scheme shall be issued as per section 534. Section 534 (presumably similar to the current practice) likely prescribes the process for notification, laying before Parliament, and oversight, ensuring legislative scrutiny and transparency in the scheme's implementation.

4. Notable Features and Omissions

A striking feature of Clause 264 is its brevity. Unlike Section 139B, it does not elaborate on the specific contents of the scheme (e.g., qualifications, period of authorization, code of conduct, duties, withdrawal of authorization, etc.), instead delegating these details to subordinate legislation via the scheme notification. This approach offers flexibility but may raise concerns regarding the adequacy of statutory safeguards and clarity for stakeholders.

Practical Implications

1. For Taxpayers

The scheme primarily benefits individuals and small taxpayers who may lack the expertise or resources to file returns unaided. By excluding companies and audit-requiring entities, the provision targets those less likely to have in-house accounting or legal support. This can promote greater compliance, reduce inadvertent errors, and enhance the taxpayer experience.

2. For Tax Return Preparers

TRPs are positioned as intermediaries, with their authorization, qualifications, and conduct to be regulated by the scheme. While Clause 264 does not specify these aspects in the primary legislation, it is expected that the scheme will address them, drawing from the experience u/s 139B. The authority to exclude certain individuals (e.g., those referred to in section 515(3)(a)(ii)) ensures that only suitable candidates are authorized, maintaining the integrity of the process.

3. For the Tax Administration

The provision empowers the CBDT to design and update the scheme as needed, facilitating responsiveness to technological or operational challenges. The requirement to notify the scheme and (presumably) lay it before Parliament ensures a degree of accountability. However, the broad delegation of powers also necessitates robust checks to prevent arbitrary or opaque rule-making.

4. Compliance and Procedural Impact

Taxpayers availing the TRP scheme will need to comply with the scheme's procedural requirements, including documentation, authorization, and possibly the payment of fees. TRPs will be subject to regulatory oversight, and any breach of the scheme's requirements may result in withdrawal of authorization or other penalties.

Comparative Analysis: Clause 264 vs. Section 139B

1. Structural and Substantive Parallels

Both provisions share the core objective of enabling specified classes of persons to furnish returns through TRPs. The definitions of "tax return preparer" and "specified class or classes of persons" are broadly similar, with both excluding companies and audit-requiring entities from eligibility. The Board's power to frame a scheme, to be notified officially, is retained in both.

2. Major Differences and Evolution

• Level of Detail: Section 139B is considerably more detailed, explicitly providing for:
  • The manner and period of authorization for TRPs;
  • Educational and other qualifications, training, and conditions for TRPs;
  • A code of conduct, duties, and obligations for TRPs;
  • Grounds and process for withdrawal of authorization;
  • Other matters as may be specified in the scheme.
  Clause 264 omits these specifics, delegating all operational detail to the scheme itself. This marks a shift towards greater reliance on subordinate legislation, potentially increasing flexibility but also raising concerns about legal certainty and stakeholder awareness.
• Legislative Oversight: Section 139B(5) mandates the laying of the scheme before both Houses of Parliament for scrutiny and potential modification or annulment. Clause 264(3) simply refers to notification as per section 534, the contents of which are not detailed in the provided text. The extent of Parliamentary oversight under the new regime will depend on the provisions of section 534.
• Exclusions and References: The exclusionary references differ. Section 139B excludes persons referred to in section 288(2)(ii)-(iv), which covers certain legal and accounting professionals and government servants, from acting as TRPs. Clause 264 refers to section 515(3)(a)(ii), the content of which is not provided, but the intent appears similar: to prevent conflicts of interest and ensure the independence of TRPs.
• Procedural Safeguards: The explicit requirements for TRPs to assist taxpayers in a specified manner and to affix their signature on the return (Section 139B(2)) are not mentioned in Clause 264. These may be incorporated in the scheme, but their omission from the primary legislation reduces statutory visibility and enforceability.

3. Policy Considerations and Rationale for Change

The shift from a detailed statutory framework to a more flexible, scheme-based approach may be motivated by the desire to rapidly adapt to technological changes (e.g., e-filing, digital signatures, remote authentication) and to lessons learned from the implementation of the earlier scheme. However, this flexibility must be balanced against the need for legal certainty, transparency, and protection of taxpayer rights.

The continued exclusion of companies and audit-requiring persons reflects a policy judgment that such entities have adequate resources and should not require TRP facilitation, focusing government support on small and unrepresented taxpayers.

4. Potential Ambiguities and Issues

• Delegation to Subordinate Legislation: While flexibility is desirable, excessive delegation without clear statutory guidance can lead to inconsistencies, lack of predictability, and challenges in judicial review. The absence of express statutory requirements for TRP qualifications, conduct, and accountability may weaken the regulatory framework unless robustly addressed in the scheme.
• Oversight and Accountability: The mechanism for Parliamentary oversight of the scheme under Clause 264 hinges on section 534, the details of which are not provided. If oversight is diluted, there may be concerns regarding transparency and democratic control.
• Exclusion Criteria: The reference to section 515(3)(a)(ii) in defining eligible TRPs is not self-explanatory. Clarity is required to ensure that the exclusion operates as intended, preventing conflicts of interest and maintaining integrity.
• Impact on Existing TRPs and Transition: The transition from the regime u/s 139B to Clause 264 may impact existing TRPs, their authorizations, and ongoing proceedings. Transitional provisions or clarificatory notifications may be required to ensure continuity and avoid disruption.

Practical Implications for Stakeholders

1. Taxpayers

For eligible taxpayers (excluding companies and audit-requiring entities), the scheme provides a valuable compliance tool. However, the absence of statutory detail may make it harder for taxpayers to understand their rights and the obligations of TRPs without reference to the scheme notification.

2. Tax Return Preparers

TRPs must await the scheme notification for details on eligibility, training, duties, and disciplinary mechanisms. The lack of statutory guidance may lead to uncertainty or inconsistency in implementation across regions or over time.

3. Tax Administration

The broader discretion granted to the CBDT may facilitate innovation and rapid adaptation of the scheme. However, it also increases the burden on the Board to ensure that the scheme is comprehensive, fair, and transparent, with adequate safeguards against abuse.

Comparative Analysis with International and Other Indian Provisions

Globally, many tax jurisdictions employ authorized intermediaries to assist taxpayers (e.g., IRS-authorized tax preparers in the United States). The Indian approach under both Section 139B and Clause 264 is consistent with international best practices in targeting small and unrepresented taxpayers, providing regulatory oversight, and excluding large or sophisticated entities from the scheme.

Within India, similar delegation to schemes and subordinate legislation is seen in areas such as GST return filing and digital compliance initiatives. The trend reflects a broader move towards administrative flexibility, but also underscores the need for robust oversight and stakeholder engagement.

Conclusion

Clause 264 of the Income Tax Bill, 2025 represents a continuation and modernization of the policy embodied in Section 139B of the Income Tax Act, 1961. While retaining the core objective of facilitating return filing for small and unrepresented taxpayers through TRPs, the new provision shifts operational detail from the statute to subordinate legislation. This enhances flexibility but also places greater responsibility on the tax administration to ensure transparency, accountability, and clarity in the scheme's design and implementation. The comparative analysis highlights the need for careful balancing of administrative efficiency and legal certainty, with particular attention to oversight, stakeholder protection, and transitional arrangements.

Full Text:

Clause 264 Scheme for submission of returns through tax return preparers.