Tax Relief Alert: ITR-U Window Expanded to Cover Four Assessment Years

The Income Tax Department has recently announced an important modification regarding the Updated Income Tax Return (ITR-U), a change poised to offer substantial relief and flexibility to taxpayers. In the past, ITR-U permitted taxpayers to amend mistakes or oversights in their returns within a two-year timeframe from the conclusion of the relevant assessment year. However, a new notification has expanded this timeframe to an impressive four prior years (48 months from the end of the relevant assessment year). This is a significant development that presents a new chance for compliance and correction.

What is ITR-U?

Launched in the Union Budget of 2022, ITR-U (Income Tax Return - Updated) is a specialized form (Form ITR-U) under Section 139(8A) of the Income Tax Act, 1961. It provides a voluntary compliance option for taxpayers who might have overlooked filing their original return, inaccurately reported certain income, or made other mistakes in their previously submitted returns (original, belated, or revised). The main goal is to enable taxpayers to rectify their situation and update their tax returns, thus steering clear of possible penalties and legal issues in the future.

The Expanded Window: Four Previous Years

The most significant alteration is the lengthening of the filing period. Commencing in April 2025 (as declared in Budget 2025-26), taxpayers will have the capability to submit an ITR-U for as many as four assessment years following the end of the corresponding assessment year.

Here’s how the extended timeline operates:

• Assessment Year (AY) 2022-23 (FY 2021-22): The deadline to submit ITR-U was 31st March 2025.
• Assessment Year (AY) 2023-24 (FY 2022-23): The deadline to submit ITR-U is 31st March 2026.
• Assessment Year (AY) 2024-25 (FY 2023-24): The deadline to submit ITR-U is 31st March 2027.
• Assessment Year (AY 2025-26) (FY 2024-25): The deadline to submit ITR-U is 31st March 2029.

This means that if you, for instance, neglected to report some income from FY 2021-22 (AY 2022-23), you now have until March 31, 2027, to submit an updated return.

Who Can File ITR-U?

Just about any taxpayer has the opportunity to file an ITR-U, including individuals, HUFs, firms, LLPs, and companies, as long as they meet one of the following conditions:

• Did not submit a return: You missed the deadlines for the original, belated, and revised returns.
• Incorrect income reporting: You reported less income than what you actually earned.
• Incorrect income classification: You assigned your income under an incorrect category.
• Incorrect tax rate paid: You made an error in calculating your tax obligation.
• To decrease carried forward loss: You wish to lessen the carried forward losses from a previous year.
• To decrease unabsorbed depreciation: You want to minimize the unabsorbed depreciation.
• To adjust tax credit under sections 115JB/115JC: You need to modify your tax credits.

When is it not possible to file ITR-U?

Although ITR-U has wide applicability, there are specific scenarios in which it cannot be submitted:

• If the revised return indicates a loss.
• If the revised return results in a refund or increases the existing refund amount.
• If the revised return causes a decrease in tax liability.
• If an updated return has already been submitted for that assessment year.
• If there are ongoing or completed assessment, reassessment, revision, or re-computation procedures for that assessment year.
• If you are subject to search operations (under section 132), survey operations (under section 133A), or any requisition/seizure of assets (under section 132A).
• If there are reports against you under the Prevention of Money Laundering Act, Black Money (Undisclosed Foreign Income and Assets) and Tax Act, or Benami Property Transactions Act.

Additional Tax Liability for ITR-U

It is crucial to understand that submitting an ITR-U incurs an extra tax liability, which increases with the delay in filing. This additional tax is apart from the tax and interest due on the newly declared income.

• Within 12 months from the conclusion of the relevant Assessment Year: 25% of the total of tax and interest due.
• Between 12 and 24 months from the conclusion of the relevant Assessment Year: 50% of the total of tax and interest due.
• Between 24 and 36 months from the conclusion of the relevant Assessment Year: 60% of the total of tax and interest due.
• Between 36 and 48 months from the conclusion of the relevant Assessment Year: 70% of the total of tax and interest due.

This penalty structure encourages taxpayers to update their returns promptly to lessen their additional tax liabilities.

Advantages of the Extended ITR-U Filing Period

The extension of the ITR-U filing deadline to four years presents several notable benefits:

• Improved Compliance: It allows a longer timeframe for taxpayers to voluntarily correct mistakes and omissions, fostering better tax compliance and decreasing the likelihood of the Income Tax Department initiating scrutiny or penalty actions.
• Less Legal Complications: By openly reporting unreported income or rectifying errors, taxpayers can avert the serious repercussions of non-compliance, which may include significant penalties, interest, and even legal action.
• Increased Flexibility: The lengthened timeframe provides taxpayers with more time to reconcile their financial records, gather necessary documentation, and consult with tax experts if needed, resulting in more precise filings.
• Chance for Those Who Missed Filing: Individuals who genuinely missed their original and belated filing deadlines for preceding years now have an extended opportunity to achieve tax compliance.

How to File ITR-U?

The ITR-U form must be submitted along with the relevant updated ITR form (ITR-1 to ITR-7). The general procedure includes:

• Accessing the Income Tax e-filing portal.
• Choosing the ITR-U option and the corresponding assessment year.
• Entering your PAN, Aadhaar, and if necessary, the acknowledgment number of your previously submitted return.
• Indicating the reason for filing the updated return from the provided options (e.g., income reported inaccurately, incorrect income classification).
• Inputting the updated income information and calculating the additional tax liability.
• Paying the additional tax along with accrued interest.
• Filing the ITR-U alongside the matching updated ITR form.
• Verifying the return, ideally using a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC).

Conclusion

The extension of the ITR-U filing window to cover the past four years represents a positive development by the Income Tax Department. This change highlights a move towards promoting voluntary compliance and offering taxpayers a solid means to rectify previous mistakes with minimal difficulty. Although the amount of tax owed increases over time, the advantages of preventing legal repercussions and maintaining accurate tax records significantly outweigh the associated costs. Taxpayers ought to utilize this extended opportunity to examine their past submissions and make timely updates if any inaccuracies are detected, thereby ensuring their financial compliance and peace of mind.

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