The New Provision of Updated Return

The Finance Minister has introduced a new provision for filing an Updated Tax Return vide Finance Act 2022 by inserting sub-section 8A to Section 139 of the Income-tax Act, 1961 (ITA).

Before we analyze the provisions, it will be beneficial to understand the government’s objective behind introducing this provision.

Under the current provisions of ITA, the taxpayer is required to file the tax return within the due date as prescribed under Section 139 of ITA. If the return is not filed within the due date, the taxpayer can file a belated tax return three months prior to the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Similarly, ITA provides the taxpayer an opportunity to revise the return filed earlier in case of any omission or wrong statement, which is to be filed three months before the end of the assessment year or before the completion of the assessment, whichever is earlier. Hence, the object of Section 139 of the ITA is to give reasonable time to the taxpayer to file a correct statement of his income within the duration specified under the ITA.

The government factoring the utilization of huge information and data available relating to the taxpayers, consider that an additional timeline for filing a revised/belated return may not be adequate. Therefore, the concept of Updated Return is introduced, which on the one hand, will bring the use of huge data with the IT Department to a logical conclusion resulting in additional revenue realization and on the other hand, it will facilitate ease of compliance to the taxpayer in a litigation free environment.

The Focus Point explains in detail the provisions relating to the Updated Return:

What is Updated Return?

A taxpayer, whether or not he has furnished his tax return, is provided an option to file an Updated Return. The Updated Return can be filed within 24 months from the end of the relevant assessment year.

Where a taxpayer has furnished a return under Section 139 of ITA, he can file the Updated Return. Even where the return is not furnished, the taxpayer is eligible to file an Updated Return.

When can an Updated Return not be filed?

The Updated Return cannot be filed in the following scenarios:

  • Where the Updated Return is a return of a loss; or
  • has the effect of decreasing the total tax liability determined based on the return furnished earlier under Section 139 of ITA; or
  • results in a refund or increase in the refund due based on the return furnished under Section 139 of ITA, earlier

In view of the above, Updated Return can be filed only where there is taxable income or where the tax liability is increasing or remaining neutral or where the refund is decreasing, compared to the tax return filed under Section 139 of ITA.

Who is disqualified from filing Updated Return?

Certain taxpayers are excluded from filing the Updated Returns, which include the following:

  1. The taxpayer is subject to search and survey as specified under the ITA for the relevant assessment year in which the search or survey is conducted.
  2. The taxpayer who has already furnished the Updated Return.
  3. Where the assessment or reassessment or recomputation or revision of income under the ITA is pending or has been completed.
  4. Where the Tax officer has information in respect of said taxpayer for the relevant assessment year in his possession under certain specified Acts and the same has been communicated to the taxpayer, prior to the date of furnishing of Updated Return.
  5. Where the Tax officer has information for the relevant assessment year received under a Double Tax Avoidance agreement, and the same has been communicated to taxpayer, prior to the date of furnishing of Updated Return.
  6. Where any prosecution proceedings have been initiated prior to the furnishing of Updated Return.
  7. Where the taxpayer is such person or belongs to such class of persons, as may be notified by the Board in this regard.

Hence if the taxpayer satisfies any of the above conditions, he shall be disqualified from file the Updated Return.

Additional income tax on Updated Return

A new Section 140B is introduced relating to the taxes payable on the income disclosed in Updated Return. The taxes need to be paid before filing of Updated Return and the proof of the same need to be attached with the tax return.

The taxpayer will be required to pay two types of taxes (a) Normal tax, interest, and fee, if any, applicable on the income disclosed in the Updated Return after reducing advance tax, TDS credit, and foreign tax credit on the taxes deducted outside India, MAT credit, etc. and (b) Additional tax on the aggregate of taxes and interest payable on the income disclosed in Updated Return.

Where the Updated Return is filed within 12 months from the end of the relevant assessment, the additional tax will be 25%, and where the Updated return is filed after 12 months but before 24 months from the end of the relevant assessment, the additional tax will be 50%. The additional tax will be computed on the taxes and interest payable on the income disclosed in the Updated Return.

As such, in addition to the normal tax and interest payable on the additional income disclosed in the Updated Return, the taxpayer will also be required to pay additional tax.

Filing of Updated Return

The Central Board of Direct Taxes recently, vide its notification no 48/2022 dated 29 April 2022, has inserted Rule 12AC to the Income Tax Rules, 1962, which provides the mechanism of furnishing the Updated Return of income in the prescribed form ITR U relating to Assessment year commencing from AY 2020-21 and subsequent assessment years.

Conclusion

The option to file an Updated Return is a welcome provision for the taxpayer to disclose any additional income that was missed to be reported in the original or revised, or belated return. This provision will curtail the litigation between the taxpayer and the tax officer and will promote voluntary tax compliance. However, the taxpayer needs to be equally mindful of the additional taxes that will be payable in addition to the taxes and interest payable on the income disclosed in the Updated Return. The taxpayer, therefore, while filing the tax return, needs to be extremely careful and ensure that all the income is correctly disclosed and the information available in the Annual Information Statement (AIS) is analyzed while filing the original return, so the requirement to file Updated Return can be avoided.

Tax Street April 2022