The Budget 2025 has proposed to extend the time limit to file updated income tax returns (ITRs) for any assessment year from the current limit of two years to four years, but that comes at a cost.
In her Budget 2025 speech, Finance Minister Nirmala Sitharaman announced a proposal to extend the time limit for filing an updated return from the current 24 months to 48 months from the end of the relevant assessment year to further promote voluntary tax compliance.
Launched in 2022, the updated return facility enables taxpayers to voluntarily rectify mistakes or omissions in their original or belated returns. Designed to enhance transparency and compliance, this initiative has seen significant adoption, with nearly 90 lakh taxpayers already using it to update their incomes and pay additional taxes.
Updated tax return period extended at a cost
In accordance with Section 139(8A) of the Income Tax Act, 1961, every taxpayer whether or not they have furnished any original return or belated return or revised return would be eligible to furnish an updated return of income. Such updated return of income can be filed at any time after the end of the relevant assessment year but within 24 months from the end of the relevant assessment year in the Form ITR-U. For instance, with respect to financial year 2023-24, a taxpayer can file an updated return on or before 31st March 2027.
According to CA (Dr.) Suresh Surana, for further nudging voluntary compliances, “the Finance Bill 2025 has now proposed to extend the period for filing of the updated tax return. Pursuant to which the updated return can now be filed up to 48 months from the end of relevant assessment year, subject to payment of additional tax”.
What would be additional tax liability for filing an updated return?
The additional tax liability depends on how late the updated return is filed:
Within 12 months (after the deadline for revised/belated return): Pay 25% of total tax and interest due.
Between 12 to 24 months: Pay 50% of total tax and interest due.
Between 24 to 36 months: Pay 60% of tax and interest on additional income disclosed in the updated return.
Between 36 to 48 months: Pay 70% of tax and interest on additional income disclosed in the updated return.
“Tax ranging from 25% to 70% of the tax and interest payable results in very steep overall tax incidence. While the extended period would encourage compliance, it would have been better to keep the additional tax at 25%, which is adequate as a deterrent,” says Surana.
As per the Budget Memorandum, it is further proposed to provide that no updated return shall be furnished by any person where any notice to show-cause under section 148A of the Act has been issued in his case after thirty-six months from the end of the relevant assessment year.
However, where subsequently an order is passed under sub-section (3) of section 148A of the Act determining that it is not a fit case to issue notice under section 148 of the Act, updated return may be filed up to 48 months from the end of the relevant assessment year.