Updated Return- Advantages and Disadvantages



Quick Summary
The Finance Budget of 2022-23 introduced a provision for filing an updated income tax return, allowing taxpayers to correct previously undisclosed income. This updated return can be filed within two years of the relevant Assessment Year, provided additional income is disclosed, leading to extra tax payment. While it offers a chance to rectify errors and avoid prosecution, it comes with a significant additional tax charge and cannot be used to reduce declared income or claim a refund.

Arjuna (Fictional Character): Krishna, Honourable Finance Minister had declared the Finance Budget of 2022-23 on 01st February in the Lok Sabha wherein proposal to bring provision of filing updated return of income tax was introduced. What is this provision of filing updated return?

Krishna (Fictional Character): Arjuna, it is proposed to insert a new provision from 01-04-2022 u/s 139(8A) which will provide an option to taxpayers to furnish updated return of his income within two years from the end of the relevant AY, irrespective of whether an original tax return was filed or not.

Arjuna (Fictional Character): Krishna, what are the conditions under which the updated return can be filed?

Updated Income Tax Return: Pros and Cons Explained

Krishna (Fictional Character): Arjuna, the conditions for filing updated return are as follow:

  1. The updated return can be filed only if additional income is being disclosed in the return and it results in additional tax outflow for taxpayer.
  2. Only one updated return can be filed for a particular Assessment year.
  3. If the return is filed within 12 months and 24 months from the end of Assessment year then additional tax shall be charged @25% and 50% of aggregate of tax and interest payable respectively.
  4. While filing updated return the assessee is required to provide proof of payment of applicable tax and interest along with late return fling fees and “additional tax”.
  5. The updated return cannot be filed if it is a return of loss or decreases tax liability or Increases Refund.
  6. The updated return cannot be filed in search & seizure cases or where prosecution proceedings have been initiated against assessee or cases where assessment, reassessment, revision or re-computation is pending or completed.
 

Arjuna (Fictional Character): Krishna, what are the advantages of the updated return?

Krishna (Fictional Character): Arjuna, the advantages of updated return are as follows:

  1. It provides an additional opportunity to correct income which were missed to be disclosed in earlier return.
  2. It will provide relief from any further legal proceedings and prosecution.
  3. The updated return will help in reducing litigation.
 

Arjuna (Fictional Character): Krishna, what are the dis-advantages of the updated return?

Krishna (Fictional Character): Arjuna, the dis-advantages of updated return are as follows:

  1. The additional tax rate charged is also very high and it results in huge increase of tax liability.
  2. The government has provided this facility to only those who wants to declare additional income as compared to original return but it does not allow the taxpayer to reduce his/her income which is against the interest of taxpayers.

Arjuna (Fictional Character): Krishna, what should one learn from this?

Krishna (Fictional Character): Arjuna, government is trying to provide an opportunity to taxpayers to disclose their income which was previously omitted to be disclosed, and on the other hand will also generate additional revenue for the government. It will facilitate ease of compliance to the taxpayer in a litigation free environment.

FAQ :

The updated return provision (u/s 139(8A)) allows taxpayers to furnish an updated income tax return within two years from the end of the relevant Assessment Year, whether or not an original return was filed.

An updated return can only be filed if additional income is disclosed, resulting in additional tax outflow. Only one updated return is permitted per Assessment Year, and it cannot be filed if it shows a loss, decreases tax liability, increases a refund, or if prosecution proceedings have been initiated.

The advantages include an extra opportunity to correct undisclosed income, relief from further legal proceedings and prosecution, and a reduction in overall litigation.

The disadvantages are the high additional tax rates (25% or 50% depending on the timing) which significantly increase tax liability, and the fact that it only allows for declaring additional income, not reducing declared income.

An updated return cannot be filed in cases of search and seizure, where prosecution proceedings have begun, or if assessment, reassessment, revision, or re-computation is pending or has been completed.


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