Draft Income Tax Rule 165, 166 – Updated Return Filing under Sections 263(6) & 263(2) and Defective Return Conditions under Section 263(7)
Draft Rules 165 and 166 of the Income-tax Rules, 2026 prescribe the procedure for filing updated returns and outline the conditions under which a return will be treated as defective. Under Rule 165, any person eligible to file an updated return under section 263(6) read with section 263(2) must furnish such return in Form ITR-U and verify it in the prescribed manner. Companies are required to file ITR-U electronically using a digital signature, while persons other than companies may file either electronically under digital signature or through electronic verification code (EVC). The Principal Director General or Director General of Income-tax (Systems) is empowered to prescribe procedures, formats, standards and security measures to ensure secure electronic transmission, archival and retrieval of return data.
Rule 166 provides that a return shall be regarded as defective if mandatory fields, schedules and computation details have not been duly filled; if the audit report required under section 63 in auditable cases is not furnished prior to filing; if, in the case of updated returns, details of tax payment under section 267 are not properly disclosed; or if the MAT or AMT credit claimed does not match the carry-forward allowed in the latest accepted return. The Board may notify classes of persons for whom these conditions may not apply or may apply with modifications, ensuring administrative flexibility while maintaining filing discipline.
Extract of Rule No. 165, 166 of Draft Income-tax Rules, 2026
Rule 165
Furnishing of updated return of income under section 263(6) read with section 263(2) of the Act.
(1) The return of income to be furnished by any person, eligible to file such return under section 263(6), shall be in the Form ITR-U and be verified in the manner indicated therein.
(2) ITR-U shall be furnished by a person, mentioned in column (2) of the Table below in the manner specified in column (3) thereof: —
Table
| Sl. No. | Person | Manner of furnishing return of income |
| (1) | (2) | (2) |
| 1. | Company | Electronically under digital signature. |
| 2. | Any person other than a company | (A) Electronically under digital signature;
(B) Transmitting the data electronically in the return under electronic verification code. |
(3) For the purposes of this sub-rule (2), “electronic verification code” means a code generated for the purpose of electronic verification of the person furnishing the return of income as per the data structure and standards specified by Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems).
(4) The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to furnishing the return in the manners specified in column (3) of the Table.
Rule 166
Conditions for treating a return as defective return under section 263(7) of the Act.
(1) A return of income shall be regarded as defective, if any of the following conditions is satisfied, namely: —
(a) all fields, parts, schedules, statements, and columns in the return of income, as applicable to the case of the assessee, have not been duly filled in, including those relating to computation of income chargeable under applicable heads of income, computation of gross total income and total income;
(b) the report of the audit, in auditable cases, referred to in section 63, has not been furnished prior to the filing of the return of income;
(c) if the return of income is furnished under section 263(6), the details of payment of tax as per section 267 are not duly filled in the return;
(d) the brought forward credit of minimum alternate tax (MAT) or alternate minimum tax (AMT) claimed in the return is not in accordance with the carry forward of MAT or AMT in the latest return, as the case may be, allowed to the assessee;
(2) The Board may notify, the class or classes of persons, to which any of the conditions specified in clauses (a) to (d) of sub-rule (1), shall not apply or shall apply with such modifications, as may be specified in such notification.
