[2025] 171 taxmann.

com 169 (
Article)© image image image
JIMIT DEVANI MOHAMMED TAQI MERCHANT JUGAL PATEL
Partner Tax, Deloitte Haskins & Manager Tax, Deloitte Haskins & Assistant Manager Tax, Deloitte
Sells Chartered Accountant LLP Sells Chartered Accountant LLP Haskins & Sells Chartered
Accountant LLP
Background

The government introduced the facility of updated returns vide the Finance Bill, 2022 for
promoting voluntary rectification of income tax returns by taxpayers who had failed to
file their return of income or who had misreported or under reported certain income.
Since then, 90 lakh taxpayers have voluntarily updated their return of income by paying
additional tax.

The government's current approach - "Trust first, scrutinize later" –is seen as
emphasizing on 'trust-based regulation' and on the simplification of regulatory and tax
frameworks. The focus of the government has been to build greater confidence amongst
taxpayers by prioritizing trust over excess scrutiny.

Towards this, the Finance Bill of 2025 has proposed to extend the time limit for filing
updated returns for any assessment year, from the existing time limit of 24 months, to 48
months from the end of the relevant assessment year.

An overview of the existing updated return facility

Under existing provisions of the Act, taxpayers can file an updated return within 24
months from the end of the relevant assessment year. This facility has been instrumental
in promoting voluntary compliance, allowing taxpayers to rectify omissions or errors in
their original, belated, or revised returns or for non-filers to furnish return of income for
the first time. The additional income-tax payable in case of an updated returns was as
below:

Time Frame Additional Income-Tax

Payable
Within 12 months from the end of the relevant 25% of the aggregate of tax and
assessment year interest
After 12 months but within 24 months 50% of the aggregate of tax and
interest
The provisions related to filing an updated return under the existing tax laws come with
specific exceptions and restrictions, which inter alia includes restriction to file updated
return if any assessment, reassessment, recomputation, or revision proceedings for the
relevant assessment year are pending or have already been completed. Moreover, a
taxpayer cannot file an updated return for the same assessment year more than once;
once the updated return is filed, no further changes can be made for that year.

Typically, a taxpayer may decide to file an updated return in the following situations:

— The taxpayer has inadvertently under-reported or mis-reported a

particular income in the original return;
— If there is a subsequent reduction in TDS, TCS or MAT credit;
— In case where the return of income is filed based on unaudited financial
statements and the same are audited post timeline of filing the revised
return;
— When there is a change in tax position due to new jurisprudence or
retrospective changes in law that lead to additional tax liability;
— When the Income Tax Department sends a reminder (such as a message /
email), and not a notice under the Act, regarding the failure to report
certain particulars or income, prompting the taxpayer to file an updated
return.
Proposed amendment in the Finance Bill 2025

The proposed amendment aims to further encourage voluntary compliance by extending

the

the time limit for filing updated returns from existing 24 months to 48 months from the
end of the relevant assessment year. The rates of additional income-tax payable have also
been revised as follows:

Additional Income-Tax
Time Frame
Payable
Within 12 months from the end of the relevant 25% of the aggregate of tax and
assessment year interest
50% of the aggregate of tax and
After 12 months but within 24 months
interest
60% of the aggregate of tax and
After 24 months but within 36 months
interest
70% of the aggregate of tax and
After 36 months but within 48 months
interest
The amendment also introduces specific restriction on filing updated returns. It proposes
that no updated return would be allowed to be furnished by any person if a show cause
notice for initiating reassessment proceedings is issued to him after 36 months from the
end of the relevant assessment year.

However, subsequently if an order is passed determining that it is not a fit case for
reassessment, the taxpayer may file an updated return up to 48 months from the end of
the relevant assessment year.

Impact of the proposed amendment

The amendment will take effect from 01 April 2025, providing taxpayers with an
extended window to ensure their tax returns are accurate and complete. Once effective,
the said amendment will impact the deadline of updated return for various assessment
years. The same has been tabulated below:
 Assessment Time limit to file updated return
year Situation before the Situation after the amendment
amendment
2020-21 Time limit to file updated Time limit to file updated return has
return has expired expired*
2021-22 Time limit to file updated Can file updated return from 01 April
return has expired 2025 to 31 March 2026 with 70%
additional tax*
2022-23 Can file updated return till 31
March 2025 with 50% Can file updated return:
additional tax
(1) Till 31 March 2026 - 60%
additional tax; or
(2) Till 31 March 2027 - 70%
additional tax;
2023-24
Can file updated return: Can file updated return:

(1) Till 31 March 2025 - (1)

Till 31 March 2026 - 50%
25% additional tax; additional tax; or
or (2) Till 31 March 2027 - 60%
(2) Till 31 March 2026 - additional tax; or
50% additional tax (3) Till 31 March 2028 - 70%
additional tax
* Note – Though the amendment extends the time limit to 48 months from existing 24
months from the end of the relevant assessment year, it comes into effect from 01 April
2025. Thus, the opportunity to furnish updated return for AY 2020-21 or AY 2021-22 will
not be available till 31 March 2025.

The extension of time limit for filing updated returns is a positive step towards enhancing
voluntary compliance. It provides taxpayers with an extended window to rectify any
omissions or errors in their tax returns from the existing provisions.

Overall, the proposed amendment is beneficial as it promotes a culture of compliance,

reduces litigation, and ultimately helps taxpayers by allowing them to, suo moto, rectify
their returns and comply with their tax obligations in a seamless and supportive
environment. The proposed amendment emphasizes the ongoing focus on trust-based
regulation and simplification of tax procedures, acknowledging the genuine hardship
faced by them in meeting compliance requirements.

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