Understanding updated and revised income tax returns

Revising Returns

An updated return is a new concept under the Income Tax Act, a step towards bringing voluntary compliance rather than resorting to a lengthy adjudication process. Regardless of whether or not, a return of income has been filed for a particular assessment year, an assessee is entitled to file an updated return for that assessment year within 24 months from the end of that assessment year, to correct errors, omissions or mistakes done while filing the original return or to furnish details of income in cases where no return had been furnished earlier. Currently, the earliest year for which an updated return can be filed is FY 19-20.

However, the catch is that the taxpayer has to pay an additional tax, over and above the normal rate of tax, interest and applicable late fees. For example, if the updated return is to be filed now for the year ending March 2021, an additional tax of 25% on the aggregate of tax (including interest and late fees) has to be paid.

For the same year (FY20), if the return is filed on or after April 1, 2023, then an additional tax of 50% on the aggregate of tax (including interest and late fees) has to be paid. This window of updated return is available up to 36 months from the end of the financial year.

With the additional taxes, the total tax on the income may increase up to 66% but the penal proceedings from the department can be avoided, through this voluntary compliance. A steep tax rate like this also acts as an alert for the taxpayers for early and accurate tax filing. Delayed filing or inaccurate filing will invite higher taxes.

An updated return is not the same as a revised return. An original return can be revised even if the return results in an increase in refund or losses or a decrease in tax liability. Whereas, an updated return cannot be filed if the return results in increasing the loss or refunds. Another major difference is that there are no additional taxes for revised return, whereas updated return always comes with additional taxes.

Probably, explaining the provisions of update returns through a couple of illustrations will be helpful. Arvind had filed his IT return for the financial year ending March 2021 on August 30, 2021.

Now, he has realized that an amount of Rs 90,000 interest earned is not factored in the tax return. Can he file updated return? Yes, he has to pay applicable taxes and file the return on or before March 2024.

Bhaskar has not filed his IT return for FY 2020-21. He has to report a loss of Rs 2 lakh on Future & Option (F&O) trading. Can he file? No. Any updated return which results in loss, can’t be filed. Christopher filed IT return for FY 21 but forgot to claim interest on the housing loan. Can he file the return and claim the extra taxes paid as a refund? No. Any updated return which results in a refund, can’t be filed. Likewise, if a search or survey proceedings are initiated by the department, then in such cases also, an updated return can’t be filed.

Those who are eligible to file UR can file the returns for the financial year ending March 2020 and subsequent years in Form ITR-U. Under the Income Tax Act, a penalty ranging from 50% to 200% can be imposed for under-reporting of income or misreporting of income. By filing the updated return and disclosing additional income, the taxpayer can eliminate or mitigate the aforesaid penal consequences.

(The write is a Bengaluru-based CA)