Taxpayers must file their updated Income Tax Return (ITR-U) before March 31, 2025 to rectify omissions or misreporting. This will minimise penalties and additional tax liabilities or notices from the Income Tax Department (IT dept).

The updated return provision promotes voluntary compliance and provides an opportunity to rectify genuine mistakes, thereby reducing potential litigation. Any taxpayer is eligible to file an updated return under Section 139(8A), irrespective of whether they have previously submitted an original, revised, or belated return.

Report omissions, errors

This provision applies in cases of omissions, errors, or incorrect statements in prior filings. Taxpayers can file ITR-U for FY22 (AY 2022-23), FY 23 (AY 2023-24) and FY24 (AY 2024-25) before March 31. Failure to do so within the deadline will result in a higher additional tax, which will vary based on the timeframe in which the return is filed.

As per Section 140B, filing an updated return attracts an additional tax liability of 25% of the total tax, interest, surcharge, and cess if filed within 12 months, and 50% if filed after 12 months but within 24 months from the end of the relevant assessment year. For instance, if the normal tax payable is Rs 1,000, interest is Rs 100, and cess is Rs 40, the total comes to Rs 1,140. The additional tax would be 25% of Rs 1,140, i.e., Rs 285, making the total outflow Rs 1,425 (Rs 1,140 + Rs 285).

Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm, says failing to utilise this corrective mechanism may result in subsequent tax demands, interest charges, or penalties if discrepancies are identified later during assessments. “The IT dept leverages systems such as AIS, TIS, and Form 26AS-supported by AI analytics-to monitor financial transactions, and discrepancies can trigger reassessments or notices.”

Who can file ITR-U

Introduced by the Finance Act, 2022, the concept of ITR-U under Section 139(8A) of the Income Tax Act, 1961, allows taxpayers to voluntarily correct errors or omissions in their income tax returns within two years from the end of the relevant assessment year.

An ITR-U can be filed in case of non-submission of a previous return, incorrect income declaration, selection of incorrect income heads and reduction in carried-forward losses. It can also be filed in case of reduction in tax credit under Section 115JB/115JC, application of an incorrect tax rate and and reduction in unabsorbed depreciation.

Avnish Arora, executive director, Direct Tax, Forvis Mazars in India, says this option is available only if it results in additional tax liability and cannot be used to claim or enhance refunds or reduce taxes already paid. “The ITR-U cannot be filed if any assessment, reassessment, search, survey, or prosecution proceedings are pending or have been initiated for the year it is proposed to file an updated return.”

The 2025 Budget has extended the deadline for filing updated ITRs from two years to four from the end of relevant assessment year. This gives individuals more time to correct any mistakes or omissions in their original return. This would in some way reduce the pressure to file accurate returns within a shorter timeframe.

Vishwas Panjiar, partner, Nangia Andersen, says providing a relaxed time frame, individuals can now voluntarily correct their filings. “This ease of compliance will allow a cleaner and more efficient tax process. It will also assist the individuals to mitigate the tax penalties associated with incorrect filings of the returns.”

Taxpayers must gather all the documents required for filing of an updated ITR. They should calculate the additional tax liability including potential penalties and interest before filing the return. “While filing, taxpayers must specify the reason for updating their income such as unreported income or incorrect reporting under the wrong head and ensure accurate calculation of tax, interest, and cess along with proof of payment,” says Arora. It is important to note that once filed, an ITR-U cannot be revised.