While filing income tax returns, certain errors and omissions may crop up. The same can be rectified by filing a revised return as per Section 139(5) of the income tax act. However, the government has come up with a new concept of ‘Updated Return’ in Budget 2022 sparking conversation among the taxpayers and professionals. A plain reading of the term ‘updated return’ raises a significant question - what is an updated return and how is it different from the existing revised return? Read on the complete analysis of the new updated return.
The provisions for updated income tax returns were proposed in the Finance Bill 2022 by insertion of Section 139(8A) under this act. Following is the legal analysis of section 139(8A), including therein, proposed amendments in the Finance Bill 2022:
Any person, whether or not he has furnished an original return [under section 139(1)] or belated return [under section 139(4)], or revised return [under section 139(5)], for an assessment year (herein referred to as the relevant assessment year), may furnish an updated return of his income or the income of any other person in respect of which he is assessable under this Act. The updated return shall be filed within 24 months from the end of the relevant assessment year.
The updated return shall not be filed in the following cases:
While the updated return is applicable for each and every person, certain persons have been made ineligible to furnish an updated return. Following are the cases where a person becomes ineligible to furnish an updated return:
The updated income tax return shall be accompanied by the proof of payment of tax as is required under section 140B.
The provisions for taxation for updated returns are proposed under section 140B in the Finance Bill 2022. Following is the legal analysis of taxation under section 140B:
1. If the original or belated return was not furnished and the tax liability arises consequent to the filing of the updated return, then such tax shall be paid by the assessee along with interest and fees for delay or default in filing of return as well as for delay in payment of advance tax.
The assessee shall also pay the additional income tax (discussed in upcoming points). The tax liability payable shall be after adjustment of the following:
2. If the assessee has furnished the original, belated or revised return (herein referred to as earlier return) and the tax is payable as per the updated return, then the assessee shall pay the tax after adjusting the following:
The refund issued in respect of the earlier return shall also be adjusted to the tax payable as per the updated return. The assessee shall be liable to pay, along with tax, the interest for delay or default in payment of advance tax and the additional income tax. The amount of interest paid in respect of earlier return shall be reduced from the liability.
3. The additional income tax payable for the updated return shall be equal to:
The additional income tax shall also include the surcharge and cess as may be applicable.
4. Interest payable under Section 234B (for the delay in payment of advance tax) shall be computed on the assessed tax or the amount by which the advance tax falls short of the assessed tax. The assessed tax shall be the tax on total income as declared in the updated return after adjusting the points as stated in point (2) above.
5. Interest Payable under Section 234A (for default in the furnishing of return) and 234C (for deferment of advance tax) shall be payable considering the total income as disclosed in the updated return.
6. The interest on additional income tax shall be computed based on the income as per the updated return. The interest paid in the earlier return shall be reduced from such interest on the additional income tax.
From the provisions, it can be implied that the updated income tax return aims to tax the undisclosed income by putting the onus on the assessee to self-assess and pay the tax. However, the updated return can only be used to disclose the income and not to claim the reliefs and deductions that weren’t claimed in the earlier returns. Therefore, the mechanism of updated income tax returns works for the benefit of the department and can be a great tool to reduce assessment and litigation proceedings like income escaping assessment.
In case of any query, please feel free to contact the ASC Group.
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