Guide to Updated Returns Under Income Tax Act, 1961: Key Insights and Process

Updated Return Under Income Tax Act, 1961

Objective of the Updated Return

The introduction of the Updated Return aims primarily at promoting voluntary tax compliance while reducing litigation. It encourages taxpayers to file accurate returns by providing additional opportunities for correction.

The Need for Updated Return

While there exists a provision for Revised Returns under Section 139(5) of the Act, the Updated Return serves a distinct purpose.

• Section 139(5) provides individuals the right to revise their returns filed under sub-section (1) or sub-section (4) due to errors or omissions after the due date.
• This period allows approximately five months for individuals and two months for companies or auditable cases, and one month for those engaged in international transactions or specified domestic transactions to file belated or revised returns.

The Updated Return emphasizes voluntary compliance, encouraging taxpayers to file correct tax returns. It leverages comprehensive data collected by the Income Tax Department for enhanced revenue collection while simplifying compliance for taxpayers.

Process of Filing Updated Income Tax Return

With effect from April 1, 2022, Section 139(8A) has been added to the Income Tax Act, allowing filing of Updated Returns.

• Assessees, regardless of whether they have previously filed any type of return (original, belated, or revised), may now submit an Updated Return within two years from the end of the relevant assessment year.
• For example, for Assessment Year (AY) 2022-23 (Financial Year 2021-22), the Updated Return can be filed until March 31, 2025.
• Note that only one Updated Return can be filed for each assessment year.

Non-Applicability of Section 139(8A)

An Updated Return cannot be filed if:

• It is a return of loss.
• It decreases the tax liability determined from the previously filed return.
• It results in a refund or increases the refund from the previously filed return.

Eligibility for Filing an "Updated Return"

Individuals may be ineligible to file an Updated Return for the relevant assessment year and any preceding year if:

• A search has commenced under Section 132 or a survey under Section 133A of the Act.
• Books of accounts, documents, or assets have been requisitioned.
• Notices regarding seized or requisitioned assets or documents relate to the individual.

For instance, if a search is initiated against a person in FY 2022-23, they cannot file an updated return for AY 2023-24 or earlier years.

Conditions Preventing Filing of an Updated Return

Updated Returns cannot be submitted if:

• Any assessment, reassessment, recomputation, or revision of income is pending or has been completed.
• Prosecution proceedings have commenced.
• The assessing officer has received information regarding the assessee under various tax agreements prior to filing the return, including circumstances involving specified persons under ongoing assessments, search and seizures, or specific tax acts.

Filing Updated Returns in Subsequent Years

If an individual originally filed a return of loss for a previous year within the prescribed timeline, they are allowed to submit an Updated Return, which constitutes a return of income. This remains valid regardless of the two-year limitation, provided the loss or unabsorbed depreciation is carried forward.

However, the assessee must file Updated Returns for each subsequent year if:

• The loss or unabsorbed depreciation continues to affect future years.
• The tax credit related to tax on deemed income or alternate minimum tax is modified due to the Updated Return.

Tax Implications on Updated Return

The taxation norms for Updated Returns differ from those for standard income tax returns. An individual must pay an "additional income tax" alongside any calculated tax and interest when filing an Updated Return.

Tax calculations will consider:

1. Advance tax paid.
2. TDS or TCS.
3. Relief under Section 89 for income tax.
4. Relief under Sections 90 or 91 for foreign tax.
5. Relief under Section 90A.
6. Tax credit offsets under Sections 115JAA or 115JD.

Proof of all tax payments and any additional taxes must accompany Updated Returns.

Drawbacks of the Updated Return Under Section 139(8A)

While this provision aims to assist taxpayers in declaring additional income, the imposition of a higher additional tax rate can lead to increased tax liabilities. This utility provided by the government enables individuals to disclose additional income but restricts them from reducing their reported income.

Conclusion

In summary, the introduction of the Updated Return provision fosters a significant reduction in litigation. It presents taxpayers an opportunity to correct any omissions in their originally filed or revised returns. This process minimizes the risk of assessment proceedings, which often necessitate additional consulting fees and tax payments upon resolution.