The Union Budget 2026 has proposed amendments to the Income Tax Act, 2025, enabling taxpayers to file updated income tax returns even after the issuance of reassessment notices.
Currently, Section 263(6) of the Act allows taxpayers to file an updated return within 48 months from the end of the financial year succeeding the relevant tax year. However, filing an updated return was not permitted if proceedings for assessment, reassessment or any legal actions were pending or completed for the said tax year.
Under the proposed amendment, taxpayers will be able to furnish an updated return in response to a notice under Section 280. The updated return must be filed within the period specified in the notice, and the assessee will be precluded from filing returns in any other manner for that tax year.
The additional income tax payable for filing an updated return under this provision will also see a revision. Currently, taxpayers pay 25%, 50%, 60%, and 70% of the aggregate tax and interest for filing updated returns in the first to fourth years respectively. The proposed amendment adds an extra 10% levy for returns filed pursuant to a Section 280 notice. Importantly, income on which this additional tax is paid will not attract penalties under Section 439 .
The amendments are set to come into force from April 1, 2026, applicable for the tax year 2026-27 and subsequent years. Similar amendments are also proposed for the Income Tax Act, 1961, effective retroactively from March 1, 2026, aligning procedures for updated returns under notices issued in reassessment cases.
Experts note that this change is expected to streamline compliance, reduce litigation, and provide clarity to taxpayers who wish to voluntarily correct their income declarations even after reassessment proceedings have begun.
With these amendments, the government emphasizes taxpayer-friendly reforms while ensuring the integrity of the tax system, making it easier for taxpayers to rectify past omissions without facing excessive penalties.
Official copy of the Clause is as follows
Allowing the filing of updated return after issuance of notice of reassessment:
Section 263 of the Income Tax Act, 2025 ("the Act") makes the provisions for filing of Income Tax Return by taxpayers. The said section deals with the comprehensive framework that lays down class of persons who are required to file a return, the due dates, and the different types of returns that may be furnished. It covers the original return, belated return, revised return and the updated return.
2. Further, section 263(6) of the Act deals with the updated return of Income. It allows a taxpayer, regardless of whether the original return is filed, to file an updated return within 48 months from the end of the financial year succeeding the relevant tax year. This provision is meant to promote voluntary compliance on the part of taxpayer to offer the income for taxation. The said section further imposes certain restrictions on updating the return of Income. i.e. updated return cannot be a return of loss, cannot reduce tax liability, and cannot increase a refund. Filing an updated return requires payment of additional income-tax, as prescribed, and it is not permitted in cases where assessment, reassessment, search, survey, or prosecution proceedings are pending or completed.
3. Furthermore, Section 263(6)(c)(v) of the Act prohibits the filing of updated return in such cases where any proceedings for assessment or reassessment or recomputation or revision of income is pending or has been completed for the said tax year. Accordingly, filing of update return was not allowed in such cases where proceedings of reassessment has been initiated.
4. Section 267(5) of the Act provides that additional income-tax amounting to 25%, 50%, 60% and 70% of the aggregate of tax and interest payable, shall be paid alongwith original tax and interest payable, for filing the updated return in first, second, third and fourth year, respectively from the end of the financial year succeeding the relevant tax year.
5. In this regard, it is considered that updated return may also be allowed in such cases where proceedings of reassessment have been initiated and notice of reassessment has been issued under section 280 of the Act as the same would reduce litigation.
6. In this regard, it is proposed to amend section 263 of the Act, so that an updated return may be furnished by a person for the relevant tax year in pursuance of a notice under section 280 within such period as specified in the said notice and in such a case assessee shall be precluded from filing return of income in pursuance of notice under section 280 in any other manner.
7. It is further proposed to amend the section 267 of the Act so as to prescribe that where an updated return is filed in pursuance of a notice issued under section 280 within the period specified in the said notice, the additional income-tax payable shall be increased by a further sum of 10 % of the aggregate of tax and interest payable on account of furnishing the updated return. It is further proposed that where additional income-tax is paid as per proposed additional income-tax, the income on which such additional income-tax is paid shall not form the basis of imposition of penalty under section 439.
8. It is proposed that the above amendments shall come into force from the 1st day of April, 2026 and shall be applicable for the tax year 2026-27 and subsequent tax years.
9. It is also proposed that similar amendment shall be made in the Income-tax Act, 1961 to align with the proposed amendments in the Income-tax Act, 2025. This amendment in the Income-tax Act, 1961 is made so that an updated return may be furnished by a person for the relevant assessment year in pursuance of a notice under section 148 within such period as specified in the said notice, and in such a case assessee shall be precluded from filing return of income in pursuance of notice under section 180 in any other manner.
10. It is further proposed that amendment in the Income-tax Act, 1961 shall come into force retrospectively from 1st day of March, 2026.
[Clause 5, 57]
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