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.
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.
Section 139(8A) of the Income-tax (I-T) Act provides one more route: updated return (ITR-U).
ITR-U (Updated Return)
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.
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," says Itesh Dodhi, director, Nangia & Co LLP.
Section 139(8A)
Who can file it?
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.
"It cannot be filed if search, survey, reassessment or prosecution proceedings have begun, or if tax authorities have already detected the income," says Dodhi.
Missed income disclosure
Time limit, additional tax and charges
Taxpayers can file an updated return within 48 months from the end of the relevant assessment year.
They must pay regular tax on the additional income, along with interest.
"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," says Shetty.
48-month filing window
Key benefits and downsides
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.
"It reduces the likelihood of notices and scrutiny," says Sudhakar Sethuraman, partner, Deloitte India.
Significant or unusual disclosures may, however, 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.
"Even without an updated return, omissions can still be identified during assessment or reassessment proceedings," says Sethuraman.
Additional tax under Section 140B
Mistakes to avoid
Taxpayers often err by claiming a refund or trying to reduce tax liability through ITR-U.
Some file despite being ineligible due to ongoing search, survey or assessment proceedings.
They often miscompute additional tax and interest under Section 140B and sections 234A, 234B and 234C.
"Taxpayers should 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.
Finally, 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.
The latter option can expose taxpayers to higher penalties, interest, reassessment and even prosecution.
No refund or lower tax allowed
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
Search, survey and reassessment bar
Key Points
- ITR-U allows late correction: Taxpayers can file an updated return (ITR-U) under Section 139(8A) to disclose missed income even after the revised return deadline.
- Who can use it: It can be filed by individuals, firms or companies, including those who did not file a return earlier, if there was under-reported income or reporting errors.
- Strict time limit: An updated return can be filed within 48 months from the end of the relevant assessment year.
- Extra tax is mandatory: Besides regular tax and interest, an additional tax of 25% to 70% is payable depending on the delay.
- Not allowed in some cases: ITR-U cannot be filed to claim a refund or reduce tax, and is barred if search, survey, reassessment or prosecution proceedings have already begun.
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Feature Presentation: Ashish Narsale/Rediff
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