ITR-U: Empowering Accuracy and Compliance in Tax Filings

What is ITR U?

ITR-U, known as Updated Return, enables individuals to rectify mistakes or omissions in their income tax returns. Introduced in the Union Budget 2022 offers taxpayers to file ITR if they have unintentionally left out a source of income or committed errors in their initial ITR submission, Section 139(8A) of the Income Tax Act grants a two-year period for corrections. This two-year timeframe is calculated from the conclusion of the year in which the original return was filed. ITR-U was implemented to promote tax compliance among taxpayers without triggering legal consequences. Its purpose is to provide individuals with a tool to rectify and optimize their tax filings. Through ITR-U, taxpayers can address disparities in their returns, ensuring precise adherence to tax regulations.

Who is Eligible to File ITR-U?

Individuals or entities who have made errors or omitted certain income details in their original return of income, belated return, or revised return can file an updated return, specifically known as ITR-U.

Updated Return Scenarios

• Non-Filing or Missed Deadlines: Taxpayers who did not file the original return or missed both the return filing deadline and the belated return deadline can file an updated return.
• Incorrect Income Declaration: Individuals who did not declare their income correctly in the initial filing can use ITR-U to rectify and update their income details.
• Incorrect Head of Income: If there was an error in choosing the appropriate head of income, taxpayers can correct this by filing an updated return.
• Incorrect Tax Rate Payment: Those who paid tax at the wrong rate initially can use ITR-U to rectify and pay the correct tax amount.
• Utilizing Carry Forward Losses: Taxpayers looking to reduce carried forward losses can file an updated return to make necessary adjustments.
• Utilizing Unabsorbed Depreciation: Individuals seeking to reduce unabsorbed depreciation can make adjustments by filing ITR-U.

Reducing Tax Credit under Sections 115JB/115JC

For taxpayers looking to reduce the tax credit under sections 115JB or 115JC, filing an updated return is a necessary step.

It's important to note that a taxpayer can file only one updated return for each assessment year (AY). This provision allows individuals and entities to correct inaccuracies, omissions, or errors in their initial filings, ensuring a more accurate representation of their financial situation.

Late Fee, Additional Tax u/s 140B & Last Date to File Updated Return

*25% of the aggregate of tax and interest payable, after the expiry of the time available u/s 139(4) or (5) and before completion of the period of 12 months from the end of the relevant A.Y.

**50% of the aggregate of tax and interest payable, after the expiry of 12 months from the end of the relevant A.Y. but before completion of the period of 24 months from the end of the relevant A.Y.  

Is it possible to submit a Nil return using ITR-U? The submission of a Nil return is not allowed through ITR-U. ITR-U is not applicable when there is no additional tax outflow. What advantages come with completing Form ITR-U? Filing ITR-U can help in avoiding Scrutiny assessment under section 143(3), best judgement assessment under section 144, and income escaping assessment under section 147. It also serves as a preventive measure against survey, search, and seizure proceedings. Can a refund claim be made through ITR-U? ITR-U cannot be utilized for scenarios involving refund claims, an increase in the refund amount, filing a nil return, or submitting a loss return. Therefore, the claiming of a refund is not possible with ITR-U.

Those ineligible to file Form ITR-U under section 139(8A) include individuals in the following circumstances

1. If the updated return represents a loss return / reduces the income tax liability declared in the previously filed return / results in an increased refund.
2. In cases where a search has been initiated under section 132.
3. If books of accounts or other documents are requisitioned under section 132A.
4. If a survey has been conducted under section 133A.
5. If any assessment, reassessment, re-computation, or revision proceeding is pending or completed for the relevant year.
6. When the AO possesses information against the individual under acts such as the Prevention of Money Laundering Act, Black Money (Undisclosed Foreign Income and Asset) and Imposition of Tax Act, Benami Property Transactions Act, or Smugglers and Foreign Exchange Manipulators Act, and such information has been communicated to the assessee.
7. If the information for the relevant assessment year has been received under an agreement mentioned in section 90 or section 90A regarding the individual, and this information has been communicated to the individual before the return's filing date under this subsection.
8. Other persons as notified.

In summary, ITR-U serves as a crucial avenue for individuals to correct errors in their income tax returns within a two-year window. While beneficial for rectifying mistakes, it comes with considerations such as late filing fees. The form helps avoid scrutiny assessments and safeguards against certain legal actions. However, it cannot be used for Nil returns or refund claims. Despite limitations, ITR-U plays a vital role in promoting accurate and compliant financial reporting.  

Author: CA Brijmohan Lavaniya, Co-Author: Adv. Siddharth Sachan