Understanding ITR-U: Correcting Income Tax Returns Made Easy

What is ITR U?

What sets ITR-U apart is its role as an Updated Return, designed to empower individuals in rectifying inadvertent errors or omissions in their income tax filings. With its inception in the Union Budget 2022, this provision allows taxpayers to submit a revised ITR in cases where they may have overlooked a source of income or made mistakes in their initial submission. Section 139(8A) of the Income Tax Act grants a two-year window for corrections, commencing from the conclusion of the year in which the original return was filed. ITR-U serves as a valuable instrument to enhance tax compliance without exposing taxpayers to legal repercussions. Its primary objective is to furnish individuals with the means to rectify and optimize their tax returns. Through ITR-U, taxpayers can address disparities in their filings, ensuring meticulous adherence to tax regulations.

Who is Eligible to File ITR-U?

Eligibility for filing ITR-U is extended to individuals or entities who have committed errors or omitted specific income details in their original return of income, belated return, or revised return. This provision caters to those who need to rectify mistakes or oversights in their initial tax filings, providing a mechanism to ensure accurate and comprehensive reporting of income.

Updated Return Scenarios: 

1. Non-Filing or Missed Deadlines:  Taxpayers who failed to file the original return or missed both the initial and belated return deadlines are eligible to file an updated return using ITR-U.

2. Incorrect Income Declaration: Individuals who initially provided incorrect income details in their tax filings can utilize ITR-U to rectify and update their income declarations accurately.

3. Incorrect Head of Income: In cases where an error occurred in selecting the appropriate head of income, taxpayers have the option to correct this by filing an updated return through ITR-U.

4. Incorrect Tax Rate Payment: Taxpayers who paid taxes at an incorrect rate during the initial filing can use ITR-U to rectify the error and ensure the accurate payment of taxes.

5. Utilizing Carry Forward Losses: Individuals seeking to optimize their tax situation by reducing carried forward losses can make necessary adjustments by filing an updated return.

6. Utilizing Unabsorbed Depreciation: Those looking to reduce unabsorbed depreciation for better tax planning can make adjustments by filing an updated return using ITR-U.

7. Reducing Tax Credit under Sections 115JB/115JC: For taxpayers aiming to reduce the tax credit under sections 115JB or 115JC, filing an updated return becomes a crucial step in achieving accurate tax calculations.

It’s essential to bear in mind that each taxpayer is allowed to file only one updated return for each assessment year (AY). This provision empowers individuals and entities to rectify any inaccuracies, omissions, or errors in their initial filings, ensuring a more precise representation of their financial status.

Late Fee, Additional Tax u/s 140B & Last Date to File Updated Return

*25% of the aggregate of tax and interest payable, after the expiry of the time available u/s 139(4) or (5) and before completion of the period of 12 months from the end of the relevant A.Y.

**50% of the aggregate of tax and interest payable, after the expiry of 12 months from the end of the relevant A.Y. but before completion of the period of 24 months from the end of the relevant A.Y.

Is it possible to submit a Nil return using ITR-U?

The submission of a Nil return is not allowed through ITR-U. ITR-U is not applicable when there is no additional tax outflow.

What advantages come with completing Form ITR-U?

Filing ITR-U can help in avoiding Scrutiny assessment under section 143(3), best judgement assessment under section 144, and income escaping assessment under section 147. It also serves as a preventive measure against survey, search, and seizure proceedings.

Can a refund claim be made through ITR-U?

ITR-U cannot be utilized for scenarios involving refund claims, an increase in the refund amount, filing a nil return, or submitting a loss return. Therefore, the claiming of a refund is not possible with ITR-U.

Those ineligible to file Form ITR-U under section 139(8A) include individuals in the following circumstances:

1. If the updated return represents a loss return / reduces the income tax liability declared in the previously filed return / results in an increased refund.

2. In cases where a search has been initiated under section 132.

3. If books of accounts or other documents are requisitioned under section 132A.

4. If a survey has been conducted under section 133A.

5. If any assessment, reassessment, re-computation, or revision proceeding is pending or completed for the relevant year.

6. When the AO possesses information against the individual under acts such as the Prevention of Money Laundering Act, Black Money (Undisclosed Foreign Income and Asset) and Imposition of Tax Act, Benami Property Transactions Act, or Smugglers and Foreign Exchange Manipulators Act, and such information has been communicated to the assessee.

7. If the information for the relevant assessment year has been received under an agreement mentioned in section 90 or section 90A regarding the individual, and this information has been communicated to the individual before the return’s filing date under this subsection.

8. Other persons as notified.

Conclusion:

In summary, ITR-U serves as a critical tool for correcting income tax return errors within a two-year window. While it helps in rectifying mistakes, users must be mindful of late filing fees. The form aids in avoiding scrutiny assessments and shields against legal actions. However, it is not suitable for Nil returns or refund claims. Despite limitations, ITR-U plays a vital role in promoting accurate and compliant financial reporting.

Author: CA Brijmohan Lavaniya

Co-Author: Adv. Siddharth Sachan