All you need to know about filing updated income-tax returns proposed in Budget 2022

Missed declaring an income or filed an erroneous tax return by mistake?

Budget 2022 has given you a concession. Finance minister Nirmala Sitharaman announced that taxpayers can file an updated return by paying additional tax. “The Government has proposed allowing filing of updated tax returns for up to two years without attracting penalties, thereby reposing faith in taxpayers,” says Rahul Garg, Partner Price Waterhouse, Co LLP.

These two years kickstart from the end of the assessment year in which the income should have been accounted. So, if you filed a return on December 31, 2021, then the assessment year ends on March 31, 2022 and you can file the updated return under section 139(8A) till March 31, 2024.

Also read: How faceless assessment has ushered in an era of transparency in tax matters

Who can benefit?

Filing a revised return is allowed for up to three years (three financial years) – two financial years from the end of the relevant financial year.

“The move would be helpful for the taxpayers who may have inadvertently missed out on disclosing any income while filing their tax returns on payment of additional tax, which is besides the tax due and interest). Reporting of income, which was omitted earlier or due to subsequent judicial or legislative developments can be done under updated return,” says Suresh Surana, Founder, RSM India.

Take for example the taxation of virtual assets that has been brought out in the Budget 2022, can be used to file an updated return as now clarity has emerged on the taxation of this income.

“Taxation of crypto assets regarding which there were divergent views earlier as to whether the same can be treated as long term assets with benefit of lower tax rate and indexation and in some case, no reporting was done due to lack of clarity,” adds Dr Surana.

Other income that has been accrued in the following years can be updated in the return too.

Filing fresh return

The new provision doesn’t distinguish between those who have filed their return or who want to file a fresh return. So, if you failed to file a return before the due date or before the end of the penalty window to file the return then you can use this facility.

“This provision can be opted even by a taxpayer who has failed to file their tax return as per the prescribed timelines under section 139,” says Surana.

Note that the delay in payment of advance tax, due tax and the late filing fee too might be applicable if you file a fresh return and haven’t paid the due taxes.

Watch out for the tax rate

The catch with the updated returns is that one has to pay additional tax over and above the regular tax, interest and penalty. The tax applicable on updated return is 25% if the return is filed within one year from the end of the assessment year. One would have to pay 50% as tax if the updated return is filed between 12-24 months from the end of the assessment year. The additional tax calculation would include cess and surcharge on the base tax.

“The levy of additional tax is over and above the regular income-tax and interest and even includes interest which appears to be very harsh particularly when the objective is to encourage voluntary compliance,” says Surana.

Who can’t file an updated return?

If you are looking to declare a loss and reduce your total tax outgo, then you would be disappointed. Loss that has the ability to decrease the total tax liability is not permitted under the updated return.

Elaborating on the provisions, Paras Savla, partner at KBP and Associates, says, “Losses that you have incurred cannot be set off against the income under updated return, nor can you mention the amount that is found by Income tax department under search and seizures or have received a notice. If there is information exchange from foreign countries about your income, then you wouldn’t be able to add this to an updated return,” says Paras Savla, partner at KPB & Associates.

Simultaneously, if you want to claim a refund or increase the quantum of your refund, then you cannot update the return. Also, if your return has been selected for re-assessment then you wouldn’t be able to update the return for that assessment year.

TDS Deduction

But the revised provisions for tax deduction at source suggest that if you haven’t filed a return for the past year (two years earlier), then double the TDS has to be deducted for your transactions. To know whether you have filed your return or not, a compliance checker has been launched by the income tax department.

So, once you file an updated return as your first ever return for that financial year, then the utility would contain your details.

“If you file an updated return, then the same would reflect in the utility meant to check for non-tax filers,” says Ameet Patel, tax partner at Manohar Chowdhry & Associates.

If you have been subjected to higher TDS deduction as you were a non-filer, you cannot claim a refund for the higher TDS, but the amount can be adjusted against the additional tax. However, clarity is awaited on the matter.