Updated Return under Income Tax Act - Detailed Analysis

Every Assessment year, the taxpayers engage in the return filing process to disclose their hard-earned income and, while doing so, give a piece of it to the government itself. As the income tax constitutes a significant chunk of the government's revenue, they have been keenly monitoring and optimising the whole structure of income tax. There have taken measures for boosting efficiency in the past, like Vivad se Vishvaas Schemes, etc., to make an assessee feel comfortable in a complex tax structure by eliminating pending litigations to some extent. But despite such efforts, the need to reduce litigations and make the assessment procedures simpler remains a dire need of the day.

Budget 2022 also reflected the government's ambitions towards digitalisation that can provide a surge of data to the relevant tax authorities and could start a series of time-consuming assessments and a plethora of pending litigations.

In order to motivate the taxpayers to curb the omissions or misreporting of income of any kind and voluntarily disclose any undisclosed income, the government has introduced the concept of "Updated Return". The taxpayers are now provided with an opportunity of disclosing any income which they could not declare earlier in the original or revised, or belated return, but they might have to pay some additional tax on the same.

The provisions of Section 139(8A) and Section 140B will remain the main highlight of the following article.

What is an Updated Return under section 139(8A)?

Any person, whether furnished or not his Original return under sub-section (1), Belated return under sub-section (4) or Revised return under sub-section (5) of Section 139, for an assessment year

* may file an updated return of income

* under section 139(8A) of the Income Tax Act.

* An updated return can be furnished within twenty-four months from the end of the relevant assessment year.

* The period referred to above clarifies that a taxpayer cannot file an updated return before the Financial year 2019-20, i.e. the Assessment year 2020-21. The due date for lodging an updated return for the financial year 2019-20 will be 31st March 2023.

What are the Objectives behind the Updated Return concept?

The introduction of a new type of Income-tax return is not a small step in any conceivable sense. The rationale of the government behind such a step might be: -

1. To provide the taxpayers with an opportunity to file the return of income even after the due dates have lapsed

2. If an assessee has missed the opportunity to disclose any income which might result in proceedings, then filing an updated return might act as an escape from proceedings.

3. The Updated return under section 139(8A) can not only decrease the chances of proceedings rather it can also ease the burden of any consecutive types of litigation.

4. The updated return provides the taxpayer with a chance to file an updated return of income up to two years after the end of the relevant assessment year, which means a taxpayer in any assessment year has the opportunity to file his Income tax return for three consecutive assessment years

5. Through Updated Return, Government's plan to terminate the Tax Evasion will get a boost. Voluntary filing under this concept shall also generate additional tax income for the government.

Who are eligible to file an Updated Return?

All the persons, e.g., Individual, HUF, LLP, Partnership Firm, Company, AOP, BOI, Local Authority, Artificial Judicial Person, etc., are eligible to file an Updated Return.

But, the provisions of Sec 139(8A) will not apply in the folllowing cases:

* It is filed as a return of a loss
 
* Tends to decrease the total tax liability found as per the return filed u/s 139(1), (4) or (5)
 
* Results in the refund or hikes the refund due on the grounds of the return filed u/s 139(1), (4) or (5)

To summarise, an updated return can only be filed when it is a Return of Income.

Also, it is not possible to revise an updated return.

What is the scope of an Updated Return?

The scope of an Updated return Concept seems somewhat limited as there exist plenty of restrictions on the taxpayers, making them ineligible to file an updated return.

Under Section 139(8A), a taxpayer shall be restricted from filing an updated return if: -

1. The taxpayer has already furnished an updated return for the relevant assessment year, or

2. The taxpayer has any sort of proceeding initiated against him under the Income Tax Act for the relevant Assessment Year, or

3. The Tax Payer has been communicated some information under various acts like Black Money, Benami Property, Smugglers and Foreign Exchange Manipulators or Prevention of Money Laundering by the Assessing Officer before the filing of Updated Return, or

4. If any information under section 90 or 90A(DTAA) for the relevant Assessment Year has been notified by the Assessing Officer to the taxpayer before the filing of Updated Return, or

5. If he is such other person, as may be notified by the Board in this regard.

How is the tax structure defined for the Updated Return – Section 140B?

A lot of confusion pertains among the taxpayers regarding the taxation structure regarding filing an updated return, e.g. are there any penalties for late filing? What are the additional taxes? Can a nil return be filed without paying any taxes? Can a refund be claimed? Etc.

A new section (Section 140B) was inserted vide Finance Act 2022 with effect from 1st April 2022, which gave rest to the speculations mentioned above. Section 140B contains the provisions regarding payment of taxes concerning an Updated Return.

According to section 139(8A), before furnishing the updated return, an assessee needs to discharge the following liability:

* Aggregate tax due, together with

* the interest and fee payable under any provision of the income tax act for delays in furnishing the return of income or any delay or default in payment of advance tax,

* Along with the payment of additional tax.

* Let us understand Section 140B in detail.

Sub-section (1) of section 140B deals with the case when the taxpayer furnished no return earlier (Being Original, Revised or Belated), and in such cases, tax is payable after taking into account: -

* The tax amount, if any, already paid as advance tax;
 
* Any tax deducted or collected at source;
 
* Any relief for tax claimed under section 89;
 
* Any relief for tax or deduction of tax paid in a country outside India
 
* that is to be claimed u/s 90 or u/s 91 on account of tax ;
 
* Any relief for tax paid in any specified territory outside India referred to in section 90A; and
 
*Any credit of tax claimed to be set off following the provisions of section 115JAA or section 115JD.

Sub-section (2) of section 140B deals with the case when the taxpayer furnished the return earlier (Being Original, Revised or Belated), and in such cases, tax is payable after taking into account: -

1: The tax amount, if any, already paid as self-assessment tax u/s 140A or advance tax, the credit for which has been taken in the earlier return;
 
2: Any tax deducted or collected at source, which has not been included in the earlier return;
 
3: Any relief for tax or deduction of tax paid in a country outside India that is to be claimed u/s 90 or u/s 91 on account of tax, which has not been included in the earlier return;
 
4: Any relief for tax paid in any specified territory outside India referred to in section 90A, which has not been included in the earlier return; and
 
5: Any credit of tax claimed to be set off in accordance with the provisions of section 115JAA or section 115JD, which were not included in the earlier return.

It should be noted that all the taxes (including additional taxes) pertaining to the updated return filed by a taxpayer are first required to be duly paid under the provisions of section 140B before the filing of the updated return. The proof of payment of net tax payable under section 140B must be attached along with the updated return; otherwise, the return may be considered as defective under Section 139(9).

The above provision clarifies that a Nil return, i.e. a return without payment of taxes, is not allowed under section 139(8A). Hence, a taxpayer can only file an updated return of income if there is some declaration of additional income or a fall in the amount of refund, ultimately leading to payment to taxes by a taxpayer under section 140B.

What is the additional tax under section 140B?

The rate and amount of additional tax as mentioned above in section 140B will depend upon the period of filing of the updated return. The additional taxes are bound to increase with delays in filing the updated return.

The different slabs of additional taxes are mentioned below:

* Updated Return Filed Up to Expiry Of 12 Months from End of Assessment Year – In this case, the additional tax payable will be 25% of (Regular tax + interest).

For example, if an updated return for the assessment year 2021-22 is filed up to 31.03.2023, then only 25% additional tax will be payable.

* Updated Return Filed Between 12 Months To 24 Months from End of Assessment Year – In such case, additional tax payable will be 50% of (Regular tax + interest).

For example – if an updated return for the assessment year 2021-22 is filed after 31.03.2023 but up to 31.03.2024, then additional tax at a higher rate of 50% will be payable.

Note: While computing 25% / 50% additional tax, only regular tax and interest is to be considered. Any late fee U/s. 234F will not be considered.

Mentioned below is an example to understand the additional tax concept better.

An assessee wants to file his Updated return for the Assessment Year 21-22, and his Aggregate tax payable amounts to Rs. 10,000 on which interest amounts to Rs. 2,000 and late fees amount to Rs. 5,000.

If the assessee furnishes the updated return during the first year beginning from the end of the relevant assessment year, i.e. 31st March 2022 to 31st March 2023, then his additional tax liability would be Rs. 3,000i.e. 25% of Regular tax and Interest (10000+2000) however,

If the assessee furnishes the updated return in the second year, i.e. the period ranging from 1st April 2023 to 31st March 2024, then his additional tax liability would be Rs. 6,000i.e. 50% of Regular tax and Interest (10000+2000).

How to file an Updated Return?

The Updated return filing process has been made convenient by the government's move to notify Form ITR U on 29th April 2022. CBDT vide Notification No. 48/2022 also notified Rule 12AC, which contains rules for verifying ITR U.

The taxpayers will have to choose among the following reasons for updating their income in form ITR U:

* Return previously not filed
 
* Income not reported correctly
 
* Wrong heads of income chosen
 
* Reduction of carried forward loss
 
* Reduction of unabsorbed depreciation Reduction of tax credit u/s 115JB/115JC
 
* Wrong rate of tax

Unlike other conventional Income tax returns, ITR U does not require detailed disclosure of the different income streams. Only the amount of income earned under different heads is needed to be disclosed while filing an Updated Return using Form ITR U.

Details of challan under section 140B are also required to be mentioned in Form ITR U as failure in doing so will render the return defective.

Let’s Sum up

We believe that the government is attempting to generate more revenue along with furnishing an opportunity to the assessee to reveal their income which was omitted to be shown previously. Often it is witnessed that the whole assessment and litigation process proves to be a costly affair for an assessee in cases of omission or misreporting of their income tax return. This move of the government would optimise the compliance made to the assessee and will also give a boost to a litigation-free environment.

In conclusion, the concept of an updated return under Section 139(8A) of the Income Tax Act provides taxpayers with an opportunity to disclose any undisclosed income and avoid proceedings. It aims to reduce litigations and ease the burden of consecutive litigations. The updated return must be filed within twenty-four months from the end of the relevant assessment year, and the tax liability, including additional taxes, must be paid before filing. The government's focus on digitalization and efficiency in the income tax structure reflects its commitment to curbing tax evasion and generating additional tax income.

Take control of your tax compliance and disclose any undisclosed income with ease. File an Updated Return today!" For any kind of assistance, kindly connect with us at info@manishanilgupta.com.

Disclaimer: This article is meant purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such