Updated Income Tax Returns
To enhance voluntary tax compliance among taxpayers, the government unveiled the concept of “updated income tax return” (ITR) in the 2022 Budget. This innovative approach, aimed at reducing non-compliance and potential legal ramifications, introduces flexibility in rectifying inaccuracies or omissions within specified timelines. This article delves into the intricacies of updated income tax returns, their eligibility criteria, the calculation of additional tax, and the step-by-step process of filing them.
What is an Updated Income Tax Return?
An updated return is a mechanism introduced to enable eligible taxpayers to file a new income tax return or amend an existing one. This can be done within a predetermined period, provided additional tax, interest, and penalties are paid as necessary. The primary objective behind this initiative is to encourage taxpayers to comply with tax regulations willingly, thus avoiding potential penalties and legal disputes in case of later detection by tax authorities.
Eligibility Criteria for Filing an Updated Return
Any taxpayer who has previously submitted an ITR (whether on time, belated, or even a revised return) or has not filed any ITR for a specific assessment year can opt to file an updated return within 24 months from the end of the relevant assessment year. This provision applies if the updated return increases tax payment to the government. It’s important to note that updated returns cannot be filed to claim tax refunds.
As of the current date, taxpayers can file updated returns for FY 2020-21 (AY 2021-22) until March 31, 2024, and FY 2021-22 (AY 2022-23) until March 31, 2025.
For instance, if a taxpayer submitted an ITR for FY 2021-22 but subsequently identified unreported income or hadn’t filed an original or belated return, an updated return could be filed by March 31, 2025.
Similarly, for FY 2022-23, eligible individual taxpayers can file updated returns until March 31, 2026, even if they haven’t submitted an original or belated return.
Applicability to Different Taxpayer Types
All categories of taxpayers, including individuals, HUFs, firms, LLPs, companies, AOPs, and BOIs, are eligible to file updated returns. When filing an updated return, taxpayers are required to specify the reason for updating the ITR from a list of options, which include:
- ITR not filed previously
- Incorrectly reported income
- Wrong selection of income heads
- Reduction of carried forward losses
- Reduction of unabsorbed depreciation
- Reduction of tax credit under section 115JB/115JC
- Incorrect tax rate
- Other reasons
Calculating Tax on an Updated Return
For Previously Unfiled ITRs: If a taxpayer has not filed an ITR before, they must pay the due tax along with interest, late filing fees, and any additional tax leviable before submitting the updated return. The tax amount is calculated considering various factors, such as advance tax already paid, TDS/TCS, relief claimed under different sections of the Income Tax Act, and AMT/MAT credits. The proof of payment for these components must be submitted alongside the updated return.
For Previously Filed ITRs: If the taxpayer has already submitted an ITR, they must settle any due tax (including additional tax), along with interest and late filing fees, before submitting the updated return. The self-assessment tax paid earlier, along with any interest, will be subtracted from the tax payable on the updated return. The tax amount will also be adjusted by the refund amount issued for the earlier ITR.
Calculating Additional Tax for Updated Returns
The additional tax payable for an updated return can be either 25% or 50% of the tax amount, depending on when the return is filed:
- Suppose the updated return is filed after the due date of an overdue or revised return but before 12 months from the end of the relevant assessment year. In that case, an additional 25% of the aggregate tax (plus surcharge and cess) and interest is applicable.
- If the updated return is filed after 12 months but before 24 months from the end of the relevant assessment year, an additional tax of 50% of the aggregate tax (plus surcharge and cess) and interest applies.
Filing an Updated Return via the E-Filing Portal
The process of filing an updated return through the e-filing portal involves several steps:
- Log in to the e-filing portal using your credentials.
- Navigate to e-File > Income Tax Return > File Income Tax Return.
- Choose the relevant assessment year, select the return filing type as “139(8A)-updated return,” and pick the appropriate ITR Form.
- Upload the JSON file created offline and submit the return. The JSON file utility can be downloaded from the Income Tax Portal’s ‘downloads’ tab.
- The updated return (ITR-U) must be filed along with the updated version of the applicable ITR form (ITR 1 – 7) if an earlier return was filed.
- The updated return is divided into two parts:
- Part A: General information (includes ITR filing date, acknowledgement number of the original return if applicable, eligibility criteria, the reason for filing updated ITR, and whether the updated return is filed within 12 months or 12-24 months).
- Part B: Additional Total Income (ATI) Computation of Total Updated Income and Tax Payable (enter additional income figures under each head and calculate tax payable).
- Finally, e-verify the updated return using DSC or EVC (as applicable) to complete the filing process.
Conclusion
The concept of updated income tax returns offers a significant opportunity for taxpayers to rectify errors, update information, and enhance voluntary compliance. This initiative aims to reduce potential legal conflicts and promote adherence to tax regulations by allowing taxpayers to make necessary corrections within a specified timeframe. With the step-by-step guide provided above, taxpayers can confidently file updated returns through the e-filing portal and harness the benefits of this forward-thinking approach to tax compliance.
