ITR-U explained: A golden window to fix your income tax mistakes

What is ITR-U and why it matters
ITR-U, or Updated Income Tax Return, is a facility that has been added under Section 139(8A) of the Income Tax Act. It allows taxpayers to voluntarily revise their income tax returns within 24 months from the last date of the relevant assessment year. The facility is useful for individuals and businesses to rectify mistakes, report unreported income, or introduce required adjustments without waiting for a notice from the tax department. The objective is to promote voluntary compliance at the expense of long-standing disputes with the tax department.

Who can submit an ITR-U
Any taxpayer—whether individual, firm, partnership, or otherwise—having submitted an original, delayed, or revised return may submit an ITR-U if they realize that they have under-reported income or erred in their previous filing. It is also open to those who did not file any return at all and now want to bring their tax compliance into order. The revised return can report other sources of income, claim incorrect amounts, or report previously unreported details to ensure that the amount of tax paid accurately represents the earnings.

Who cannot file an ITR-U
There are circumstances which do not meet the criteria for filing ITR-U. A taxpayer may not use ITR-U to report loss, lower the overall tax liability, or claim or boost a refund. It is not valid in case a search or survey has been conducted against the taxpayer, in case assessment proceedings are ongoing, or in case the revised return leads to no further tax payable. Additionally, in case the tax department has already received information regarding undisclosed income under certain laws or agreements, the taxpayer cannot employ ITR-U for pre-emptive action.

Time limit and penalty for filing
The period to submit an ITR-U is a maximum of 24 months from the end of the respective assessment year. But it incurs an additional cost of tax. If submitted within 12 months, the taxpayer is required to pay 25% of the additional tax and interest as a penalty; if submitted between 12 and 24 months, the penalty goes up to 50%. This fine is in addition to the actual tax and interest payable, and therefore it is essential that one acts early to limit expenses.

Why filing ITR-U is helpful
Filing an ITR-U is a proactive action that will avert legal issues, interest charges, and non-disclosure charges. It also shows good compliance behavior that can prove to be helpful if the profile of the taxpayer is identified for scrutiny in the future. Voluntarily rectifying errors allow individuals and entities to have a clean tax background, escape the agony of lengthy litigation, and avoid the possibility of notices or reassessments from the tax department.