Budget 2026: Taxpayers can now update their returns even after reassessment proceedings; Check additional tax to be levied

Taxpayers

• Taxpayers can amend returns post-reassessment with an extra 10% tax.
• No penalty on extra income disclosed via updated returns with additional tax paid
• Foreign assets under Rs 20 lakh get retrospective immunity from prosecution

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To reduce litigation, the Finance Minister has proposed in Budget 2026 to allow taxpayers to update their returns even after reassessment proceedings have been initiated.

“I propose to allow taxpayers to update their returns even after reassessment proceedings have been initiated, at an additional 10 percent tax rate over and above the rate applicable for the relevant year. The assessing officer will then use only this updated return in his proceedings,” FM said in the Lok Sabha today, marking her record ninth consecutive Budget presentation.

Under this new provision, taxpayers can rectify their filings by paying an additional 10 percent tax rate over and above the rate applicable for the relevant year. Crucially, once this updated return is filed, the assessing officer is mandated to use only this document for the remainder of the proceedings, effectively short-circuiting potential years of legal disputes.

“If an updated return is filed after receiving Notice u/s 280, it must be filed only in the manner specified in the notice, no alternative route allowed. Further, such updated return will attract additional 10 percent tax over and above tax + interest. Relief: No penalty u/s 439 on income for which this additional tax is paid,” said Himank Singla, Founding Partner, SBHS & Associates.

What is an updated return

An Updated Return allows you to update your tax return even after the deadlines for "Original," "Belated," or "Revised" returns have passed. It is designed to encourage voluntary compliance and help you avoid legal notices by reporting income you might have missed.

Extension of scope for filing updated returns

Taxpayers are currently allowed to file an updated return to disclose additional income within four years from the end of the relevant assessment year. This comes with an incremental additional tax liability of 25 percent, 50 percent, 60 percent, and 70 percent from the first to the fourth year, respectively.

To further reduce litigation, it is proposed that taxpayers be permitted to file an updated return even after reassessment proceedings have begun. In such cases, an additional tax of 10 percent over and above the applicable rate for the relevant year would be levied.

The proposal also allows taxpayers to file an updated return in situations where they reduce the quantum of loss originally reported, including cases arising under Section 263(1).

Further, where additional income is disclosed through an updated return, no penalty will be imposed on such income.

Retrospective Immunity for Foreign Assets

Recognising the challenges faced by small taxpayers and the Indian diaspora, the FM proposed immunity for foreign holdings.

Rs 20 Lakh Threshold: Non-immovable foreign assets with an aggregate value of less than Rs 20 lakh will now receive immunity from prosecution.

Retrospective Effect: This relief is applied retrospectively from October 1, 2024, effectively shielding thousands of small investors and tech professionals from past non-disclosure penalties.

Misreporting Amnesty: The existing immunity framework for "underreporting" has been extended to "misreporting," provided the taxpayer pays 100 percent of the tax amount as an additional income tax.