Updated return: Found omissions after Dec 31? File ITR-U to cut legal risk

Scrutiny may extend to other assessment years if disclosures suggest a pattern of non-compliance

With the December 31 deadline for filing revised income tax returns now over, many taxpayers who later spot missed income or reporting errors may think they have no option left. That is not true. Section 139(8A) of the Income-tax (I-T) Act provides one more route: an updated return (ITR-U).

 

What is an updated return

Section 139 of the I-T Act, 1961 sets out return-filing requirements. Returns filed within the due date under Section 139(1) are original returns. Section 139(4) allows belated returns to be filed up to December 31 of the assessment year, subject to interest and late fees. Section 139(5) allows filing of a revised return within the same time limit to correct errors or omissions. 

“The updated return under Section 139(8A) goes beyond these timelines and allows taxpayers to voluntarily disclose previously unreported income on payment of additional tax. The provision enables taxpayers to regularise past lapses while helping tax authorities collect dues without resorting to litigation,” says Itesh Dodhi, director, Nangia & Co LLP.

 

When and by whom can it be filed?

Any taxpayer—individual, firm or company—can file an updated return unless the Act specifically bars it. This option also remains open to those who did not file a return for the year earlier.

 

Taxpayers should consider ITR-U if they omitted income, wrongly claimed deductions or exemptions, or made reporting errors that led to a shortfall in tax payment. “The facility is strictly intended for voluntary disclosure of additional income and payment of the resulting tax,” says Deepashree Shetty, partner, global employer services, tax & regulatory services, BDO India.

 

“An updated return cannot be filed if it results in a refund or reduces tax liability. Taxpayers also cannot file it if search, survey, reassessment or prosecution proceedings have begun, or if tax authorities have already detected the income. In essence, the option is available only for voluntary disclosure before enforcement action starts,” says Dodhi.

 

Time limit, additional tax and charges

Taxpayers can file an updated return within four years (48 months) from the end of the relevant assessment year.

 

Taxpayers must pay regular tax on the additional income, along with applicable interest under sections 234A, 234B and 234C. “In addition, an extra tax under Section 140B is levied based on the delay—25 per cent of the tax and interest if taxpayers file within 12 months from the end of the assessment year, rising to 50 per cent within 24 months, 60 per cent within 36 months and 70 per cent within 48 months. This additional tax is mandatory and cannot be waived,” says Shetty.

 

Key benefits

An updated return is filed to rectify missed income or disclosures in the original return. “Filing ITR-U suo motu attracts lower additional tax and helps taxpayers avoid the risk of penalties, prosecution, and prolonged litigation. Proactive compliance also reduces the likelihood of notices and scrutiny, while demonstrating bona fide intent, which tax authorities generally view favourably,” says Sudhakar Sethuraman, partner, Deloitte India.

 

Downsides of ITR-U

While an updated return does not automatically trigger scrutiny, significant or unusual disclosures may invite examination by the tax authorities. “If such disclosures suggest a pattern of non-compliance, scrutiny may extend to other assessment years, subject to prescribed time limits. Importantly, even if an updated return is not filed, omissions can still be identified during assessment or reassessment proceedings,” says Sethuraman.

 

Common mistakes to avoid

Taxpayers often err by trying to claim a refund or reduce tax liability through ITR-U; filing despite ineligibility due to ongoing search, survey or assessment proceedings; or miscomputing additional tax and interest under Section 140B and sections 234A, 234B and 234C.

 

“Taxpayers should also avoid treating the updated return as a substitute for a revised return. They must also ensure adequate documentation to support the additional income disclosed,” says Shetty.

 

File updated return or wait for tax notice?

Sethuraman is of the view that if the omission or error is clear, taxpayers should file an updated return proactively, rather than wait for a notice, to ensure timely compliance and manage risk. Waiting for a notice can expose taxpayers to higher penalties, interest, reassessment and even prosecution.

 

“Taxpayers should assess the quantum involved, eligibility under Section 139(8A), and the additional tax cost before deciding,” says Shetty.

 

Documents you must retain

• Copy of the original tax return
• Revised computation of taxable income and tax liability
• Supporting income documents: Form 16/16A, Form 26AS, AIS/TIS, bank statements, capital gains statements, rental agreements, etc.
• Proof of tax and additional tax payment
• Professional advice, case laws, or legal opinions (where interpretational issues are involved)

Source: Deloitte India

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The writer is a Delhi-based independent journalist