What Happens If You Miss Declaring Income In ITR: ITR-U Provides A Second Chance

The window to file your income tax return for the assessment year 2024-2025 has closed on December 31. Last month was an anxious time for many taxpayers, with the income tax department flagging many discrepancies in filings and asking many to revisit their returns filed and correct them.

While that window is now closed, if an individual still has errors in their filing, what do they do? What if an income was not disclosed at all? There is a provision under ITR-U which allows you to reconsider and update the filing after the deadline. This is the only route through which you can file an updated return, giving you a second chance to disclose any income that you may have missed. However, ITR-U comes with certain limitations and financial costs.

What is Allowed under ITR-U

To use the provision of ITR-U, taxpayers can only disclose additional information or income. The updated return needs to be filed within four years from the end of the assessment year for which you want to update the disclosure. This can only be used to pay additional tax, interest or penalty.  In the old income tax regime, ITR-U was allowed to be filed for up to two years after the assessment year. The new regime revised this provision to allow an updated ITR to be filed up to four years.

This provision can be used in cases where the taxpayer has under-reported or reported an incorrect income. If the taxpayer has selected the wrong heads of income or applied an incorrect tax rate, ITR-U can also be used.

For example, if a taxpayer forgot to report interest income from bank savings for the previous financial year, the individual can correct the omission using the ITR-U during the extended window. However, it must be made clear that this provision cannot be used as a general tool to correct all kinds of errors.

The updated return can only be filed to disclose any income which was also declared earlier. The provision cannot be used to reduce tax liability or claim refunds. This provision cannot be used even if the tax liability remains unchanged.

This route can also not be used to disclose mandatory schedules, such as Schedule Foreign Assets or Schedule Assets and Liabilities, correct losses, or add donations. Additionally, this route is also barred for add additional income by taxpayers who received notices from the IT department but missed the deadline.

Who can File

A taxpayer who has already submitted an ITR can update their return through the ITR-U route if the individual later discovers that some income details were missing or reported incorrectly. Whether the ITR filed was an original return or a belated return filed when the due date was over, this route remains open for declaring additional income.

The route can also be used by those who did not file an ITR and have missed both the original and the extended due date deadlines. This provision was made for taxpayers to revisit their earlier filings and declare omissions or inaccuracies, which increases their tax liability.

Additional Cost for ITR-U

In case you have missed the original deadline and want to update the filing through ITR-U, it should be kept in mind that the compliance comes at a price. Firstly, taxpayers are required to pay additional tax, the interest on tax. Second, there is also a penalty imposed for the delay calculated on the additional tax and interest, a penalty which increases with time.

Under the income tax laws, a simple interest at 1 per cent is levied per month from April 1 of the assessment year till the month in which the updated return is filed. If the updated return is filed within a year, a 25 per cent penalty is imposed on the additional tax. The penalty rises to 50 per cent if the return is filed within two years. For the third year, the penalty levied is at 60 per cent, and is 70 per cent if the return is filed within four years.