Updated income-tax return: Ensure accuracy as revisions are not permitted

Only those with additional tax to pay can file an updated return

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Finance Minister Nirmala Sitharaman has proposed extending the deadline for filing updated income tax returns (ITRs) from two to four years.

 

“In the financial year 2024–25, a person can file an updated return for assessment years 2022–23 and 2023–24. The Finance Bill 2025 proposes to extend this deadline to 48 months from the end of the relevant financial year,” says Naveen Wadhwa, deputy general manager, Taxmann.

 

What is an updated return? 

An updated return, filed under Section 139(8A), allows taxpayers to amend missed or incorrect income declarations. It can be filed if they failed to file a return despite exceeding the threshold, omitted income, or overstated losses or refunds.

 

“A taxpayer liable to pay higher taxes for earlier assessment years can rectify the situation by filing an updated return and paying the additional tax,” says Vivek Jalan, partner, Tax Connect Advisory Services LLP.

 

If you wrongly declared long-term capital gains at 12.5 per cent instead of applying the slab rate or carried forward excess losses, an updated return can be used to correct these mistakes.

 

Wadhwa informs that an updated return gives taxpayers more time by allowing them to file a return after deadlines for belated and revised returns have passed.

 

Conditions attached 

Only those with additional tax outgo or reduction in loss claim can file an updated return. “The updated return effectively increases the tax flow to the government,” says Anshul Khemuka, partner, Khaitan & Co.

 

An updated return cannot be filed in certain circumstances.

 

“It cannot be filed if it is a return of loss, if the total tax liability gets reduced, or if the refund increases due to the filing of the updated return. Adjustment of additional losses against income is also not allowed,” says Akhil Chandna, partner, global people solutions leader, Grant Thornton Bharat.

 

This avenue also closes down once tax audits have begun. 

“If a search or survey proceeding has been initiated, or a reassessment proceeding is pending, or there is a proceeding under the Black Money Act, the Prevention of Money Laundering Act, or the Benami Act,” says Khemuka.

 

The option is also unavailable if the assessing officer has relevant information under the Double Taxation Avoidance Agreement (DTAA) or the Tax Information Exchange Agreement (TIEA). 

 

Compliance benefit 

Filing an updated return allows taxpayers to rectify errors voluntarily and comply with tax laws.

“If the tax office discovers a gap in compliance, they could initiate audit proceedings, which could lead to penalties,” says Khemuka.

 

Filing an updated return also mitigates the risk of an additional tax burden.

 

“If you file an updated return in the second year, you would pay 50 per cent more on additional tax and interest. But if the department detects undisclosed income, you could end up paying a penalty as high as 200 per cent,” says Jalan.

 

An updated return also helps avoid prosecution under Section 276CC, according to Wadhwa.

 

ITRs have become essential for obtaining government contracts and visas.

 

“Someone who has not filed a return but needs one can file an updated return,” says Jalan.

 

Costs involved 

Taxpayers filing updated returns must pay an additional tax liability of between 25 and 70 per cent.

 

“This additional tax liability would have been avoided if the taxpayer had filed their ITR correctly and within the specified timeline. Adjusting for losses or increasing the loss claim is also not possible through an updated return. A higher tax refund cannot be obtained through this route,” says Chandna.

 

Filing an updated return may draw scrutiny.

“There is a chance of your past tax returns being picked up for reassessment, based on an updated return” says Khemuka.

 

Precautions to exercise 

Before filing an updated return, make sure you are eligible to file one. Also, confirm that deadlines for belated or revised returns have expired. Use this option solely to correct issues you are permitted to.

 

The updated return must accurately reflect changes to income and deductions.

 

“Once filed, it cannot be revised or rectified,” says Jalan.

 

Wadhwa warns that significant changes could attract queries. He advises retaining supporting documents, such as bank statements and investment proofs, to deal with scrutiny.

 

Finally, Chandna urges taxpayers to file by December rather than waiting until the last moment.