ITR-U: A Window To Correct Missed Or Erroneous Income Tax Returns

If you have missed all your deadlines of the regular filing of the income tax return (ITR), you must consider filing an updated income tax return (ITR-U), or in case of previously filed ITRs, you realise you have made any mistakes and they require revisions, you should take the recourse of filing ITR- U. “It does come with additional costs depending on timelines, but it ensures compliance and thereby can prevent notices for assessments/ future investigations,” says Ritika Nayyar, partner, Singhania & Co.

ITR-U: Missed Filing Your ITR? This Is Your Chance

ITR-U offers taxpayers a unique opportunity to rectify errors or file a missed ITR without waiting for a notice from the Income Tax Department. “Using ITR-U voluntarily is advisable instead of waiting for notice from the tax department because waiting for a notice may lead to stricter scrutiny,” says SR Patnaik, partner (head - taxation), Cyril Amarchand Mangaldas.

The ITR-U allows taxpayers to address a range of income corrections or omissions, including unreported income, incorrect income categorisation, or errors in tax credits and deductions. It is designed for scenarios where taxpayers missed filing the ITR, omitted income sources (e.g., interest, capital gains, or rental income), selected the wrong income head, or applied incorrect tax rates. However, ITR-U cannot be used in cases that result in refunds or increase the amount of refunds, or to reduce the tax liability.

Know The Costs: Penalties Rise With Delay In Filing

“Penalties for filing ITR-U in respect of such underreported income can be paid extra, over and above the normal tax liability, as per the following, based on the timing of the filing of the ITR-U,” says Patnaik. 

·       25 per cent of the tax and interest due if filed within 12 months from the end of the relevant AY,

·       50 per cent within 12 to 24 months,

·       60 per cent within 24 to 36 months, and

·       70 per cent within 36 to 48 months.

Voluntary Filing Enhances Compliance, But Use With Caution

Filing an ITR-U voluntarily may significantly enhance a taxpayer’s compliance profile because it is being done voluntarily without any notice or nudge from the tax authorities. “In case it is an honest one-time exception, the tax department is likely to consider the genuineness of the taxpayer and may not initiate any further scrutiny. However, if this is a frequent occurrence, it may attract attention from the tax authorities,” says Patnaik.

ITR-U thus demonstrates the bona fide intentions to be a tax-compliant assessee. “However, one should use this channel wisely and not get into a habit or trend of following this year on year, since it may be construed as a red flag for the taxpayer being negligent/or having malafide intent,” says Nayaar.