Omitted certain income in ITR? File updated return but caution is needed

Use this facility cautiously, since once filed the updated return can't be modified.

The Finance Act, 2022, introduced a new Income-Tax Return (ITR) filing facility known as updated return. A new sub-section 8(A) was added to Section 139 of the Income-Tax (I-T) Act for this purpose. This scheme came into effect from April 1, 2022. Nearly 75,000 updated returns have been filed so far.  

Moiz Rafique, managing partner, Privy Legal Services LLP says, “Updated return is an opportunity for taxpayers to correct omissions or errors in their previous ITR. It also enables them to file a new ITR if they have not filed it previously.” 

Key features

Using the updated return facility, a taxpayer can revise his return for up to two years from the assessment date, subject to applicable penalty, which is 25 per cent if filed within 12 months from the assessment date, and 50 per cent if filed within 24 months. 

Soayib Qureshi, associate partner, PSL Advocates & Solicitors, says, “This provision, however, can’t be utilised if the updated return results in a loss, or has the effect of decreasing the tax liability.”

An updated return for FY 2021-22 can be filed by March 31, 2025.

Rafique says, “There is a separate ITR Form U for filing an updated return.”

Disclose additional income 

An updated return can only be filed when a taxpayer has to disclose additional income that was missed or omitted earlier, and has to pay additional tax. 

Don’t confuse an updated return with a revised return. A revised return can only be filed by a person who had filed his original return on time. It must also be filed within nine months from the end of the financial year. Once the period for filing a revised return is over, a taxpayer can only file an updated return.

Ankit Jain, partner, Ved Jain & Associates says, “Taxpayers who filed a belated return don’t have the option to file a revised return. They can only file an updated return.”

A one-time facility

A taxpayer is not eligible to file an updated return if a proceeding of assessment, search, or survey is underway against him. Also, an updated return can only be filed once. Jain says, “A person who has filed his updated return once can’t file it again.”

Avoid prosecution  

By filing an updated return, the taxpayer can disclose income that was missed earlier.

Ananya Gupta, associate, Victoriam Legalis-Advocates & Solicitors, says, “It will provide relief from any further legal proceedings and prosecution and will help reduce litigation.”

The tax authorities can access income data from multiple sources today. If a taxpayer fails to declare any income, the tax authorities could consider the person to be in default.

Jain says, “In such a case, the taxpayer may become liable to pay up to 300 per cent of the tax on such income as penalty. An updated return allows such income to be declared, allowing the taxpayer to be compliant with the law at a much lower cost.”

When preparing a return for a certain year, one may discover that income from a preceding year was not declared. Until now, the taxpayer had no option but to become a defaulter since he couldn’t revise the return at that stage. 

Jain says, “However, remember that updated return only allows an upward revision of tax liability. One can’t claim loss, additional deductions, or additional refund by filing an updated return.” 

Use cautiously

The opportunity to update the return is available only once, so ensure that there is no more additional income left to declare after you have filed an updated return.

Finally, as Gupta says, “There is no assurance that the department will not pick a case for scrutiny assessment where an updated return has been filed under Section 139(8A).”

How to calculate tax liability for updated return

1. Take into consideration the income-tax payable.
2. Next, consider the interest and fee payable for non-filing.
3. You will also have to pay an additional tax.
4. This will equal 25 per cent of tax if the return is filed within a period of 12 months.
5. It will be 50 per cent if the return is filed within 24 months from the relevant assessment date

Source: PSL Advocates & Solicitors