New Tax Proposal: 70% Increase in Tax on Updated ITRs in Budget 2025

Overview

The Union Budget 2025 introduces significant changes in income tax laws, especially concerning updated income tax return (ITR) filings. One of the most crucial updates is extending the deadline for filing updated ITRs from two years to four years. However, this comes with a catch—taxpayers filing after the two-year window will face a hefty 70% additional tax.

Current Law on Updated ITR Filing

As per the existing rules under Section 139(8A) of the Income Tax Act:

• Taxpayers can file an updated return within two years from the end of the relevant assessment year.
• Additional tax applies as follows:
  • 25% of the tax and interest if filed within one year.
  • 50% of the tax and interest if filed within two years.

Proposed Budget 2025 Changes

The Budget 2025 proposes:

• Extending the time limit for updated ITRs from two years to four years.
• Imposing an additional 70% tax on updated returns filed after two years but within four years.

Why Is This Change Being Introduced?

• Encouraging voluntary compliance: More time allows taxpayers to rectify errors.
• Boosting tax collection: Higher taxes deter delayed reporting.
• Preventing tax evasion: Increased penalties discourage income underreporting.

Impact on Taxpayers

For Salaried Individuals

Minor discrepancies may not have a major effect, but missing out on reporting capital gains or rental income could lead to a significant financial burden.

For Businesses

Companies filing revised returns due to revenue adjustments, audits, or errors may find the 70% tax increase financially challenging.

For High-Net-Worth Individuals (HNWIs)

HNWIs with offshore accounts or complex income sources may be discouraged from delaying tax filings.

Example Calculation: How Much Additional Tax Will You Pay?

Expert Opinions

Support: Experts believe this will enhance compliance and boost government revenues.

Criticism: Business leaders argue that the 70% penalty is excessive and could discourage genuine corrections.

What Should Taxpayers Do?

• File accurate returns on time.
• Review past ITRs. Identify any potential errors before the new rule takes effect.
• Seek professional tax advice.
• Stay updated on Finance Bill 2025 amendments.

Conclusion

The Budget 2025 proposal to extend the updated ITR filing period gives taxpayers more time to correct mistakes. However, the steep 70% additional tax on filings after two years imposes a significant financial burden. It is crucial for taxpayers to remain proactive and ensure compliance within standard deadlines.

What’s Your Opinion?

Do you think the 70% tax increase is fair, or does it place an unnecessary burden on taxpayers? Share your thoughts in the comments!

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