Budget 2025: FM extends deadline to file updated ITR from two to four years | Mint

In case you forgot to report some income while filing tax returns anytime in the past four fiscal years, Budget 2025 has good news. The timeline to file an updated income tax return has been increased to four years from two years starting April 2025.

Of course, an updated ITR can only be filed to report a higher tax liability, unlike a revised return that can modify your ITR to include deductions and reduce tax liability.

Introduced in April 2022, this provision in the Income Tax Act allows taxpayers to report income by paying additional tax on it if they missed filing it before. Using this, they can also file their ITR if they had missed filing it earlier.

This “trust in taxpayers” resulted in nearly 9 million people updating their returns with correct incomes, Union finance minister Nirmala Sitharaman revealed in her eighth budget speech on Saturday. “Taking this trust further, I now propose to extend the time limit to file updated returns for any assessment year from the current limit of 2 years to 4 years.” the finance minister said in her speech.

According to the proposed provisions, additional tax of 60% and 70% is payable if the return is filed between 24-36 months and 36-48 months, respectively, from the end of the concerned assessment year.

To be sure, tax incidence is lower if the missed income is reported by filing updated ITR before 24 months. If filed before 12 months from the end of the assessment year, additional tax payable is 25%, and 50% if it is filed within 12-24 months.

Experts lauded the move. “Many people knowingly or unknowingly make mistakes while filing ITR,” said Prakash Hegde, a Bengaluru-based chartered accountant. “In all such cases, it was difficult to guide him beyond two years. Now we can tell them to go up to four years back. It also encourages people to be more compliant.”

The details

The additional tax payable is calculated on the original tax payable along with interest from the start of the assessment year. Under section 234B of the Income Tax Act, 1% interest on tax is payable every month if the ITR was filed and the taxpayer wants to file an updated ITR. If the taxpayer did not file an ITR at all, then 2% interest on tax per month is payable (1% under section 234A for non-filing ITR plus 1% under section 234B for delay in payment of tax).

Prakash Hegde, a Bangalore-based chartered accountant, said this provision will benefit those who filed income tax returns in FY21, FY22, FY23, and FY24.

For instance, if a taxpayer filed ITR for FY23-24, then the assessment year would be 2024-25. That person could earlier file an updated ITR any time between 1 January 2025 and March 2027. In the budget announced by finance minister Nirmala Sitharaman on Saturday, it has been extended to 31 March 2029.

If a show-cause notice has been issued under section 148A after three years, then, in this case, an updated ITR cannot be filed. However, the budget memorandum says that if the case was deemed not fit, then the taxpayer can file an updated return up to four years from the end of the relevant assessment year.

Harshal Bhuta, partner at P.R. Bhuta & Co. Chartered Accountants, explained that a show-cause notice under section 148A can be issued after three years only if an assessment officer (AO) suspects that income more than ₹50 lakh is likely to have escaped taxation. “Under such cases, an updated return would be permitted to be filed by the taxpayer only when it is subsequently determined by the AO that reassessment is no longer required,” he said.

However, Bhuta cautioned that filing an updated return does not exempt the taxpayer from the provisions of Black Money Act. “Only when the taxpayer has disclosed income under the original tax return or a revised return or a belated tax return, would the provisions of Black Money Act not apply. It does not exclude income disclosed under an updated return.”

If the taxpayer fails to report additional income within the updated tax filing timeframe of four years, then there’s no way to report it to the IT department. If an assessment officer finds out about this, a tax penalty of up to 200% of the tax payable amount can be levied.