Update Your Tax Return with ITR-U Filing | Complete Guide

ITR-U Filing: How to Update Your Tax Return

As the deadline to file income tax returns expired on July 31, 2024, many taxpayers are now seeking alternatives to ensure compliance with tax regulations. Notably, a record 7.28 crore tax returns were filed by the deadline, with 72 percent of filers opting for the new tax regime. However, for those who missed the deadline or need to make corrections, the provision to file a belated income tax return (ITR) or an updated income tax return (ITR-U) is available until December 31, 2024, subject to a penalty.

Understanding ITR-U

The concept of the Income Tax Return (Updated) or ITR-U was introduced in the Budget 2022 to allow taxpayers to rectify errors or omissions in their previously filed returns. This provision aims to promote voluntary compliance and reduce litigation by enabling taxpayers to correct inaccuracies in their income tax returns.

An ITR-U can be filed under Section 139(8A) read with Section 140B of the Income Tax Act, 1961. It provides an opportunity to update income details, correct mistakes, and ensure that all incomes are accurately reported, albeit with the payment of additional taxes.

Scenarios for Filing an Updated Return

Taxpayers can file an updated return in the following scenarios:

  • Return Not Filed: When the taxpayer did not file a return by the original due date.
  • Income Not Reported Correctly: When the taxpayer failed to report some or all income.
  • Incorrect Income Heads: When the wrong heads of income were selected.
  • Reducing Carried Forward Loss: To correct any overstated carried forward losses.
  • Adjusting Unabsorbed Depreciation: To amend any misstatements in unabsorbed depreciation.
  • Adjusting Tax Credit: To rectify inaccuracies in tax credits under sections 115JB/115JC.
  • Incorrect Tax Rate: When the tax rate applied was not correct.

Restrictions on Filing ITR-U

There are specific restrictions on filing an ITR-U:

  • Nil Return or Return of Loss: It cannot be filed if the return shows nil income or a loss.
  • Decrease in Tax Liability: It is not permitted if the updated return results in a decrease in the total tax liability compared to the original return.
  • Refund Claims: It cannot be filed if it results in a refund or increases the refund amount.
  • Search and Seizure Cases: It is prohibited in cases involving search and seizure operations or where prosecution proceedings have been initiated.

Tax Regime Selection

Taxpayers must be aware that the choice of tax regime (old or new) must be made by the original due date under Section 139(1) of the Income Tax Act. Once chosen, the tax regime cannot be changed after the due date.

Frequency of Filing Updated Returns

Under the provisions of Section 139(8A), taxpayers are allowed to file an updated return only once for each assessment year. This means that if any further errors are discovered, the taxpayer cannot file another updated return for the same year.

Tax Payable on Filing ITR-U

When filing an ITR-U, taxpayers must pay additional taxes based on the timing of the updated return:

  • Within 12 Months: An additional 25 percent of the aggregate tax and interest due.
  • After 12 Months but Before 24 Months: An additional 50 percent of the aggregate tax and interest due.

Filing an Updated Return Without Tax Liability

If the total tax is adjusted with Tax Deducted at Source (TDS) credit and there is no additional tax liability, an ITR-U cannot be filed. The provision mandates the payment of additional taxes, and if there are no taxes due, the updated return is not applicable.

Procedure for Filing ITR-U

Step 1: Compute Additional Tax Liability

Calculate the additional tax and interest due based on the updated income details. Ensure that all errors and omissions are corrected in the computation.

Step 2: Pay Additional Taxes

Pay the additional taxes through the appropriate challan. Ensure that the payment is made under the correct head and that all details are accurately filled in.

Step 3: File the Updated Return

Log in to the income tax e-filing portal and select the option to file an updated return (ITR-U). Enter all necessary details, upload supporting documents if required, and submit the updated return.

Step 4: Verification

Verify the updated return through the available verification methods on the e-filing portal. This can include electronic verification, sending a signed copy to the Centralized Processing Centre (CPC), or through Aadhaar OTP.

Conclusion

Filing an updated income tax return (ITR-U) provides taxpayers with an essential mechanism to ensure compliance and rectify errors. It is crucial to understand the scenarios, restrictions, and procedural requirements to make the most of this provision. By doing so, taxpayers can avoid penalties, reduce litigation, and maintain accurate tax records.

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