ITR-U: A Second Chance for Tax Compliance

What is ITR-U?

ITR-U (“Income Tax Return – Updated”) is an innovative step introduced under Section 139(8A) of the Income Tax Act, 1961, via the Finance Act, 2022. Effective from April 1, 2022, this provision offers taxpayers a way to correct omissions or errors in previously filed income tax returns. This mechanism is a move towards simplifying tax compliance while encouraging voluntary rectifications.

Purpose of ITR-U

The primary goal of ITR-U is to foster voluntary compliance and reduce the burden of scrutiny by the Income Tax Department. Here are common situations where ITR-U can be used:

1. Income omitted from the original ITR.
2. Incorrect tax computation or liability.
3. Missed deductions or exemptions.
4. Filing returns for financial years skipped earlier.
5. Providing correct information to replace earlier inaccurate details.

Who Can File ITR-U?

Taxpayers eligible for ITR-U include individuals, businesses, or other entities that:

1. Missed filing a return for a particular financial year.
2. Filed a return but need to update it due to errors or omissions.

When to File ITR-U?

1. Time Limit:
   • ITR-U can be filed within 24 months from the end of the relevant assessment year. For instance, for Assessment Year (AY) 2023-24, the deadline to file ITR-U is March 31, 2026.
2. Additional Tax Payable:
   • Filing ITR-U attracts an additional tax:
     • 25% of the extra tax payable if filed within the first 12 months.
     • 50% of the extra tax payable if filed after 12 months but within 24 months.

Who Cannot File ITR-U?

ITR-U cannot be used in the following cases:

1. When filing results in:
   • A refund claim.
   • A reduction in tax liability.
2. Involving:
   • Search or survey operations initiated by the Income Tax Department.
   • Completed assessment or reassessment proceedings.
   • Cases under prosecution or covered under the Black Money Act.
   • Undisclosed foreign income or assets

Benefits of Filing ITR-U

1. Promotes Voluntary Compliance:
   • Encourages taxpayers to rectify errors without waiting for notices or assessments.
2. Reduces Litigation:
   • Proactive filing lowers disputes and enhances transparency.
3. Simplified Rectification:
   • The process is streamlined, making it easier to update returns.
4. Avoids Hefty Penalties:
   • By addressing discrepancies early, taxpayers can avoid stricter penalties during scrutiny.
5. Strengthens Trust:
   • Enhances the relationship between taxpayers and the Income Tax Department

Steps to File ITR-U

1. Login: Visit the Income Tax e-filing portal at https://incometax.gov.in.
2. Choose ITR-U: Select the updated return option and relevant assessment year.
3. Enter Details: Provide updated income details and compute taxes.
4. Pay Additional Tax: Calculate and pay any additional tax liability.
5. Submit Return: Upload the updated return along with necessary documents.

Key Takeaways

1. ITR-U is a powerful tool for rectifying tax filings within 2 years of the relevant assessment year.
2. Penalties Apply: Filing within 12 months incurs a 25% penalty; after 12 months, it rises to 50%.
3. It cannot be used for refunds, undisclosed foreign assets, or cases under scrutiny.

Why It Matters

ITR-U is not just a provision; it’s an opportunity for taxpayers to stay on the right side of compliance while promoting a more transparent tax system. Whether you missed filing your return or need to correct an error, ITR-U ensures you can address it proactively.