Complete Analysis on New Updated Income Tax Return – Budget 2022

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.

What is an 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:

• If the updated return is the return of loss.
• If the updated return has the effect of decreasing the total tax liability or increasing the refund originally determined on the basis of the return furnished under section 139(1) / (4) / (5) for the relevant assessment year.

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:

• When a search has been initiated under section 132 or books, documents or other assets have been requisitioned under section 132A or,
• a survey is conducted under section 133A [except section 133A(2A)] or,
• A notice has been issued stating that any money, bullion, jewellery or other valuable article or thing requisitioned or seized u/s 132 or 132A in case of any other person belongs to such person or,
• A notice has been issued stating that any books of accounts or documents requisitioned or seized u/s 132 or 132A in case of any other person pertains or relates to such person
• for the assessment year relevant to the previous year in which such search or survey was conducted and any assessment years preceding such assessment year. Thus, once the action of search or survey is initiated, the updated return cannot be filed for that assessment year and any other preceding assessment year.

Updated returns can also not be furnished in the following cases:

• Where an updated return has already been furnished for the relevant assessment year. This implies that the updated return can be filed only once for an assessment year or,
• If the proceedings relating to assessment, reassessment, revision of income or recomputation is pending or have been completed for the relevant assessment year or,
• The assessing officer has certain information in his possession regarding such person for the relevant assessment year under the following acts and such information was communicated to such person before the furnishing of the updated return:
  • Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
  • Prohibition of Benami Property Transactions Act, 1988
  • Prevention of Money-laundering Act, 2002
  • Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
• Information has been received for the relevant assessment year under an agreement as referred to under section 90 or 90A (Double Taxation Avoidance Agreement) and the same was communicated to such person before filing the updated return.
• Prosecution under Chapter XXII (Offences & Prosecution) was initiated against such person before the filing of the updated return
• He belongs to such category of person as may be notified by the board.

The updated income tax return shall be accompanied by the proof of payment of tax as is required under section 140B.

The amendments proposed in the Finance Bill 2022 proposed insertion of the following provisions:

• 4th proviso to Section 139(8A): Here, in case a return of loss is filed under Section 139(3), then the updated return can be filed provided that the updated return is the return of income and not the return of loss.
• 5th proviso to Section 139(8A): If the filing of an updated return for any assessment year leads to the reduction of the following for the subsequent years, then the updated return shall be filed for each such subsequent year:
  • Loss or any part thereof that is carried forward under Chapter VI (Aggregation of Income and setoff or carry forward of loss)
  • Unabsorbed depreciation carried forward u/s 32(2)
  • Tax credit carried forward u/s 115JAA
  • Tax credit carried forward u/s 115JD

Tax on Updated Return

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:

• Advance tax
• TDS / TCS
• Relief or deduction for taxes paid outside India (Section 90 or 91)
• Relief of tax paid in any specified territory outside India (Section 90A)
• Set off of tax credit as per the provisions of Section 115JAA or 115JD

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:

• All the reliefs as discussed in point (1) above,
• All the above reliefs as discussed in point (1) above (except advance tax) on that portion of the income that was not included in the earlier return.

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:

• 25% of the aggregate of tax and interest as determined in point (1) or (2) above if the updated return is furnished after the expiry of time available for filing a belated or revised return but before completion of the 12 months from the end of the relevant assessment year.
• 50% of the aggregate of tax and interest as determined in point (1) or (2) above if the updated return is furnished after the expiry of 12 months but before 24 months from the end of the relevant assessment year.

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.

In a Nutshell

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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