Section 139(8A) – Updated Return (ITR-U)

In a significant move to promote voluntary tax compliance and reduce litigation, the Finance Act, 2022, introduced a new provision in the Income Tax Act – Section 139(8A), allowing for the filing of an "Updated Return" (also known as ITR-U). This provision offers a last-chance opportunity for taxpayers to correct errors or declare additional income, even after the deadlines for original, belated, and revised returns have passed.

What is an Updated Return (ITR-U)?

An "Updated Return" is a special Income Tax Return that can be filed to rectify errors or omissions in previously filed returns, or to file a return where none was filed before, specifically to declare additional income that was not reported earlier. The primary objective of ITR-U is to facilitate compliance by allowing taxpayers to disclose unreported income and pay additional tax (along with interest and a penalty), thereby avoiding potential penalties and prosecution from the Income Tax Department.

Who Can File an Updated Return?

An Updated Return can be filed by any person, irrespective of whether they have filed a return previously for that assessment year, if they:

• Have not filed a return for the relevant assessment year.
• Filed a return, but:
  • Under-reported their income.
  • Missed out on reporting certain income sources.
  • Selected the wrong head of income (e.g., reporting business income as capital gains).
  • Reduced their carried forward losses (e.g., business loss, capital loss).
  • Reduced unabsorbed depreciation.
  • Reduced TDS/TCS credit carried forward.

Who CANNOT File an Updated Return?

The facility of filing an Updated Return is not available in certain circumstances:

• If the updated return is filed for claiming a refund or increasing a refund amount.
• If the updated return is filed to decrease the total income or increase a loss.
• If a search operation (Section 132/132A) or a survey operation (Section 133A) has been initiated against the taxpayer for the relevant assessment year.
• If an assessment or reassessment proceeding (Section 147, Section 148, Section 153A, Section 153C) is pending or has been completed for the relevant assessment year.
• If any prosecution proceedings have been initiated or are pending under the Income Tax Act for the relevant assessment year.
• If information for the relevant assessment year has been received under an agreement with foreign countries.
• If an updated return has already been filed for the same assessment year.

Time Limit for Filing an Updated Return

An Updated Return can be filed within 24 months (2 years) from the end of the relevant assessment year.

Example:

• For Financial Year 2022-23, the Assessment Year is 2023-24. The updated return for AY 2023-24 can be filed up to March 31, 2026.
• For Financial Year 2023-24, the Assessment Year is 2024-25. The updated return for AY 2024-25 can be filed up to March 31, 2027.

Additional Tax Payable (Penalty)

Filing an Updated Return requires the payment of additional tax over and above the regular tax and interest liabilities. This additional tax is essentially a penalty for the delayed and updated disclosure:

• If filed within 12 months from the end of the relevant assessment year: An additional tax of 25% of the aggregate of tax and interest due.
• If filed between 12 and 24 months from the end of the relevant assessment year: An additional tax of 50% of the aggregate of tax and interest due.

In addition to this additional tax, interest under Sections 234A (for delay in filing), 234B (for default in advance tax), and 234C (for deferment of advance tax) will also be applicable.

Example Scenarios:

• Mr. X discovers an undisclosed income of ₹50,000 for FY 2022-23 (AY 2023-24), leading to an additional tax liability of ₹15,000 (plus interest). If he files the Updated Return on December 1, 2025 (within 12 months from end of AY 2023-24), he pays ₹15,000 (tax) + applicable interest + 25% of (₹15,000 + interest).
• Ms. Y discovers an undisclosed income for FY 2022-23 (AY 2023-24), leading to an additional tax liability of ₹20,000 (plus interest). If she files the Updated Return on June 1, 2026 (between 12 and 24 months from end of AY 2023-24), she pays ₹20,000 (tax) + applicable interest + 50% of (₹20,000 + interest).

How to File an Updated Return (ITR-U)

Taxpayers need to file a specific form, Form ITR-U, which was introduced for this purpose. The process is entirely online through the Income Tax Department's e-filing portal. Key steps involve:

1. Selecting the relevant assessment year for which the return is to be updated.
2. Specifying the reason for filing the updated return (e.g., failure to file ITR, incorrect income reporting, etc.).
3. Providing details of the additional income and calculating the resultant additional tax and interest.
4. Ensuring that all taxes, interest, and the additional penalty are paid before filing the ITR-U, as proof of payment (challan) is required.

Benefits of Filing an Updated Return

• Escape Prosecution: The most significant benefit is avoiding prosecution under the Income Tax Act for non-disclosure or under-reporting of income, which can lead to imprisonment.
• Reduced Penalties: While an additional tax is levied, it is significantly lower than the penalties that could be imposed by the department during an assessment or reassessment (e.g., Section 270A penalty of 50%-200%).
• Promotes Voluntary Compliance: It provides a unique opportunity for taxpayers to come clean and comply with tax laws without facing harsh consequences.
• Reduces Litigation: By proactively disclosing income, taxpayers can reduce the likelihood of facing reassessment proceedings and prolonged disputes with the tax authorities.

Interplay with Other Sections

• Section 139(1) (Original Return): The initial return filed by the due date.
• Section 139(4) (Belated Return): Filed after the due date but by Dec 31st of the AY.
• Section 139(5) (Revised Return): Filed to correct errors in an original or belated return, by Dec 31st of the AY.
• Key Distinction: Unlike original, belated, or revised returns, an Updated Return (Section 139(8A)) cannot be further revised. It's a final, one-time opportunity per assessment year.