Filing updated tax returns extended from 2 to 4 years: Points to remember

Finance Minister Nirmala Sitharaman has proposed extending the deadline for filing updated returns for any assessment year from the current limit of two years to four years. Introduced in 2022, the updated return facility allows taxpayers to voluntarily correct any mistakes or omissions in their original or belated returns.

 

This “trust in taxpayers” resulted in nearly 9 million people updating their returns with correct incomes, Sitharaman revealed in her eighth budget speech on Saturday.

 

“Taking this trust further, I now propose to extend the time limit to file updated returns for any assessment year from the current limit of 2 years to 4 years,” the finance minister said in her speech.

 

“The proposed Finance Bill 2025 amends Section 139(8A) of the Income Tax Act, 1961 extending the window for filing updated returns to 48 months from the relevant assessment year. The window-extension to 38 months from 24 months for filing belated returns shall be subject to additional tax of 60 per cent for returns filed between 24-36 months and 70 per cent for those filed between 36-48 months. Taxpayers may be barred from filing their belated returns if a Section 148A show-cause notice is issued after 36 months from the end of the relevant assessment year, unless deemed unwarranted by an order,” said Rajarshi Dasgupta, executive director-Tax, AQUILAW.

 

“Tax payers should also take into account that though the Budget 2025 has proposed to extend the time limit to file updated return, it has also increased the percentage of ‘additional’ income tax and interest to be paid if the returns are filed beyond 24 months i.e taxpayers have to pay 60 per cent/70 per cent tax and interest as additional income tax if they avail the benefit of extension of time limit and file the updated return beyond 2 years, but within 3 years or 4 years respectively,” said Dipesh Jain, partner at Economic Laws Practice.

 

Situations where an updated return can be filed:

 

An updated return can be submitted in the following cases:

 

Failure to file the return within the due date or the belated return deadline.

 

Incorrect declaration of income.

 

Selection of the wrong head of income.

 

Payment of tax at an incorrect rate.

 

Reduction of carried-forward losses.

 

Reduction of unabsorbed depreciation.

 

Reduction of tax credit under Sections 115JB/115JC.

 

Experts suggest taxpayers should not wait for the 4-year period and file the updated return at the earliest as filing return early would lead to lesser additional income-tax exposure, which becomes penal in nature and increases substantially as the time horizon increases.