What is updated return and how to file it?

In a bid to increase voluntary compliance by taxpayers, the government introduced the concept of an updated income tax return (ITR) in Budget 2022.

To implement the concept, section 139(8A) and section 140B were introduced in the Income-tax Act, 1961. Subsequently, via a notification dated April 29, 2022, the CBDT inserted Rule 12AC and notified Form ITR-U, to give effect to the aforesaid provisions.

What is an updated return?

The concept was introduced to allow an eligible taxpayer to file or update an income tax return, within specified timelines albeit by paying additional tax, interest and penalty, in an endeavour to increase voluntary compliance and to avoid penal consequences and further litigation if such omission was subsequently detected by the tax authorities.

Who can file an updated return?

A taxpayer who has either filed his ITR (whether on time, belatedly or even a revised return) or has not filed his ITR for an assessment year has an option to file an updated return within 24 months from the end of the relevant assessment year provided it results in additional payment of tax to the Government. This means that an updated return cannot be filed to claim a refund of tax paid.

At present, an updated return in Form ITR-U can be filed for FY 2020-21 (AY 2021-22) till March 31, 2024 and for FY 2021-22 (AY 2022-23) till March 31, 2025.

For example, if a taxpayer has filed ITR for FY 2021-22 and it has come to his notice that certain income has not been reported in the original ITR or even in a case where an original / belated return was not filed then, the updated return can be filed by March 31, 2025.

Similarly for FY 2022-23, in case of an individual taxpayer who is eligible to file an updated return, such return can be filed till March 31, 2026 even if an original return or a belated return is not filed.

It may be noted that all taxpayers, i.e., individuals, HUF, Firms/LLP, Companies, AOP, BOI etc. are eligible to file an updated return. The reason for updating the ITR has to be disclosed; they will have to choose from the following options:

• ITR previously not filed
• Income not reported correctly
• Wrong heads of income chosen
• Reduction of carried forward loss
• Reduction of unabsorbed depreciation
• Reduction of tax credit under section 115JB/ 115JC
• Wrong rate of tax
• Others

How to calculate tax on updated return

If ITR was not filed earlier: Where no ITR has been filed by the taxpayer, then before filing the updated return, the taxpayer must pay the tax due together with interest and late filing fee payable, for the delay in filing return and/or payment of advance tax, along with the additional tax leviable on filing of the updated return. The tax payable is calculated after taking into account the following:
– The amount of advance tax (already paid)
– Any TDS/TCS
– Any relief of tax claimed under various sections of the Income Tax Act
– Any AMT credit/MAT credit

Such updated return shall also be accompanied by proof of payment of such tax, additional tax, interest and late filing fee under section 234F.

If ITR has been filed earlier: If the taxpayer has already filed ITR then, before submitting the updated return, the taxpayer would be liable to pay tax due (including additional tax) together with interest and late filing fee for delay in furnishing the ITR or payment of advance tax.
It may be noted that the amount of self-assessment tax along with interest paid in the earlier return would be reduced from the tax payable and the tax shall be increased by the amount of refund (if any) issued in respect of the earlier filed return.

How additional tax is calculated for updated return

A taxpayer filing an updated return is required to pay additional tax which can be either 25% or 50% of the tax amount, depending on the date of filing of such return. The additional tax payable at the time of furnishing updated return shall be calculated as follows: