File updated ITR before Mar 31 to reduce risk of scrutiny, penalties

ITR-U can be filed under specific conditions; can't be used to reduce tax liability

The deadline to file an updated income-tax return (ITR-U) is March 31, 2024, for the assessment year 2021-2022 (FY21). The option to file an ITR-U gives taxpayers an opportunity to amend their past returns and ensure compliance with the tax laws.

In the past few weeks, some taxpayers have received notices due to discrepancies between the returns filed by them and the information available with the Income-Tax (I-T) Department.

“Go through these notices carefully. If you discover any missed tax payments, definitely opt for filing an ITR-U by including such income in it. Otherwise, you might receive further notices for income that has escaped assessment from the I-T Department,” says Ankit Jain, partner, Ved Jain & Associates.

ITR-U is defined under Section 139(8A) of the I-T Act. There is a time limit for filing ITR-U. “The taxpayer is allowed to file ITR-U within two years or 24 months from the end of the relevant assessment year (AY). Therefore, the due date for filing ITR-U for AY 2021–22 (FY 21) is March 31, 2024,” says Adithya Reddy, an international tax lawyer. ITR-U can be filed only once in a year.

When can an ITR-U be filed?

An ITR-U can be filed under specific conditions: if the original return was missed, including the deadlines for belated and revised returns; to correct undeclared income; when the taxpayer chose the wrong head of income; to rectify taxes paid at incorrect rates; and to reduce carried forward losses, unabsorbed depreciation, or tax credits under Section 115JB/115JC.

Better than undergoing audit

Filing an ITR-U allows individuals to correct errors, thereby, reducing tax liabilities and penalties if the taxpayers were to undergo scrutiny and an audit. “It is also an opportunity for individuals to declare any income that might have been missed due to oversight. In short, it helps avoid any further legal tax notices and disputes,” says Alay Razvi, partner, Accord Juris LLP.

Can’t lower tax liability

ITR-U also comes with a few disadvantages. “ITR-U cannot be used to lower tax liability by claiming missed refunds or increasing reported losses. Additionally, a late filing fee applies to ITR-U submissions,” says Ritika Nayyar, partner, Singhania & Co.

Failure to submit tax returns by the end of the relevant AY can result in a fine of up to Rs 10,000. Taxpayers who use this provision may miss out on certain tax benefits. “They may, for instance, not be able to write off their charitable contributions to some organisations,” says Bharath Gangadharan, senior associate, SKV Law Offices.

Things to keep in mind

Experts recommend disclosing all financial information upfront instead of opting for the ITR-U route. Taking this route could bring you under the I-T Department’s scanner.

“Only if you miss the date or are not able to file your return within the financial year should you file ITR-U, and that too within 12 months of the financial year,” says Razvi.

When filing it, mention all necessary details, including your Aadhaar number, PAN number, and assessment year, among others. Also ensure the accuracy and completeness of all submitted information, including income, deductions, and personal details.

Singhania advises gathering documentation to substantiate any changes you make.

Finally, be prepared for additional tax liability. “Avoid delaying the ITR-U filing until the final deadline, two years from the relevant assessment year, as it leads to additional penalties or taxes under Section 140B of the I-T Act,” says Reddy.

Filing within 12 months of the relevant AY leads to an additional 25 per cent on the tax and interest due. But if you file within 24 months, it goes up to an additional 50 per cent. Therefore, minimise penalties by filing ITR-U at the earliest, preferably within the first year.

Additional tax liability on filing ITR-U

·       To the income tax payable, add the interest and fee payable for non-filing

·       Next, consider the additional tax payable

·       This will equal 25 per cent of tax if the return is filed within 12 months of the end of the relevant assessment year

·       It will be 50 per cent if the return is filed within 24 months of the end of the relevant assessment year