All categories of Income Tax assessees can now file updated returns for the Assessment Years 2020-21 and 2021-22, with the payment of additional tax. However, this facility is not available for those seeking a refund.

Assessment Years 2020-21 and 2021-22 refer to fiscal years 2019-20 and 2020-21 respectively. For both years, the updated return form (ITR-U) has been enabled for all return types (from ITR 1 to ITR-7), in phases between June 27 and August 10. Over 65,000 returns have already been filed.

Taxpayers filing returns for AY 2021-22 will need to pay the regular tax due and interest thereon till date, along with an additional amount of 25 per cent of such tax and interest. For AY 2020-21 the additional amount will be 50 per cent of the tax payable and interest. This facility was proposed in the Budget for Fiscal Year 2022-23.

According to the announcement, the updated return can be filed within two years from the end of the relevant assessment year i.e. March 31, 2023 for AY 2020-21 and March 31, 2024 for AY 2021-22.

“Currently, if the department finds that some income has been missed out by the assessee, it goes through a lengthy process of adjudication. Instead, with this proposal , there will be trust reposed in the taxpayers that will enable the assessee herself to declare the income that she may have missed out earlier while filing her return,” Finance Minister Nirmala Sitharaman had said while proposing the scheme.

Under the new system, there could be seven reasons for filing returns. These include return previously not filed, income not reported correctly, wrong heads of income chosen, reduction of carried forward loss, reduction of unabsorbed depreciation, reduction of tax credit u/s 115JB/115JC, wrong rate of tax, besides others.

Chartered Accountant Ved Jain says taxpayers are prohibited from filing an updated return if there is no additional tax outgo, if there is a refund or increase in the refund amount, if there is search or survey or prosecution proceeding initiated, and if assessment / reassessment/ revision/ re-computation is completed or pending.

“A taxpayer can update the return if he has omitted to declare or under-declared any income, but he can’t revise and file an Updated Return if he has overstated income or by mistake included any income which either was not to be included or was exempt or where a taxpayer has omitted to claim any deduction permissible under the law,” Jain said.

Sudhakar Sethuraman, Partner with Deloitte India says ITR U cannot be filed beyond two years from the end of the relevant assessment year. He adds that taxpayers who plan to file an ITR U need to first identify the applicable ITR based on the residential status, income particulars, asset reporting, etc..

“This is an excellent opportunity for taxpayers who have either missed filing their ITR, missed reporting additional income, or missed reporting foreign income and assets (applicable for Resident and Ordinarily Resident Cases), to be compliant before the Income-tax authorities. By filing an ITR U, one not only remains compliant, but it also reduces the risk of a notice or an audit query in the future, besides avoiding penal provisions under the Income-tax laws and notices under the Black Money Act,” he said.