Updated Income Tax Return - Section 139(8A)

The Finance Bill of 2022 introduced the concept of an “updated” income tax return vide Section 139(8A) of the Income-tax Act, 1961 (“the Act”). The CBDT has notified Form ITR-U to be used for filing the updated return. This return must be filed within 2 years from the end of the relevant assessment year — for example, an updated return pertaining to FY 2020-21 has to be furnished by 31st March 2024.

Applicability

An updated return can be filed in the following scenarios:

• Return previously not filed where tax is payable
• Errors in the previously filed return leading to tax liability
• A loss return was previously filed, and the error/omission has the effect of making the return a return of income
• Reduction in loss
• Reduction in unabsorbed depreciation
• Reduction of tax credit carried forward under section 115JAA/115JD

When can an updated return not be filed?

An updated return cannot be filed in the following scenarios:

• The return to be filed is a return of loss
• The return to be filed will reduce the previously computed tax liability
• The updated return would result in a refund or an increase in refund
• An updated return has already been filed for the relevant assessment year
• Search, survey, or prosecution proceedings are initiated against the taxpayer for the relevant assessment year
• Any proceeding for assessment, reassessment, re-computation, or revision of income under this Act is pending or has been completed for the relevant assessment year
• The Assessing Officer has information for the relevant assessment year under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976, the Prohibition of Benami Property Transactions Act 1988, the Prevention of Money-laundering Act 2002, or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015, and this has been communicated to the taxpayer prior to filing
• Information for the relevant assessment year has been received under a section 90/90A agreement and communicated to the taxpayer prior to filing
• Prosecution proceedings under Chapter XXII have been initiated for the relevant assessment year prior to filing
• The assessee is a person, or belongs to a class of persons, notified by the Board in this regard

Additional income tax

• If the updated return is filed within 12 months from the end of the relevant assessment year, the additional income tax penalty is 25% of the extra tax dues.
• If filed after 12 months but before 24 months from the end of the relevant assessment year, the additional income tax is 50% of the extra dues.

Computation of income tax — Section 140B

Where no return has been filed previously, the tax payable based on the updated return is computed after considering:

• Advance tax already paid
• Any tax deducted or collected at source
• Any relief of tax claimed under section 89
• Any relief or reduction of tax claimed under sections 90/91 for tax paid outside India
• Any relief of tax claimed under section 90A for tax paid in a specified territory outside India
• Any tax credit claimed to be set off under section 115JAA or 115JD

The assessee must pay such tax together with applicable interest and fees, along with the additional income tax (25%/50%), before furnishing the return — and the return must be accompanied by proof of payment.

Where a return of income has been filed previously, the tax payable is computed after considering:

• Relief or tax under section 140A(1) already credited in the earlier return
• Tax deducted or collected on income now included that wasn’t in the earlier return
• Relief or deduction of tax under sections 90/91/90A for income not included in the earlier return
• Tax credit under section 115JAA/115JD not claimed in the earlier return
• Increased by any refund already issued for the earlier return

For the purpose of computing additional income tax, “tax” includes surcharge and cess.

Nil tax return — an open question

An interesting scenario emerges post-introduction of the updated return: can a person who is required to file a return, but has no tax liability, file one under Section 139(8A)? This can arise where:

• Gross total income exceeds ₹2,50,000, but Chapter VIA deductions bring total income below the threshold
• Total income exceeds the threshold, but no tax is payable due to rebate
• Total income exceeds the threshold, but no tax is payable due to TDS credit setoff (e.g. Section 192B cases)

Section 140B requires tax to be paid prior to filing the updated return, with proof of payment attached. Where no further tax is payable, two views exist:

1. Such a return can be filed under Section 139(8A), since the section doesn’t categorically prohibit filing where no further tax is due — the proof-of-payment requirement in Section 140B is procedural, and the provision was enacted to encourage voluntary compliance. Late fees under Section 234F, plus additional income tax on that late fee, could still be discharged with proof of payment.
2. Given the section’s intent — additional revenue realization and reporting of previously missed income — it may be difficult to argue that an updated return can be used purely to correct a compliance gap with no tax impact.

The ITR-U utility itself would help settle this question, but in the interim it would serve all stakeholders for the CBDT to clarify this point directly.