TaxAlert | What should be the checklist at the 11th hour?

What should be the checklist at the 11th hour?

With the deadline of March 31, 2025, fast approaching for filing an updated return (ITR-U) for AY 2022-23, taxpayers should ensure the following before filing:

When can it be filed?

ITR-U is a form that enables taxpayers to update their income tax returns (ITRs) by correcting errors, omissions, or missed filings. It also allows filing of returns if both the original and belated filing deadlines were missed, within two years from the end of the relevant assessment year.

Eligibility Check

• The return is being filed within the stipulated time mentioned u/s 139(8A) of the Act i.e. within 2 years from the end of the relevant assessment year.
• It does not include any reduction in declared income or enhancement of losses carried forward.
• It is not filed to disclose income under ongoing assessment, survey, or search proceedings (if applicable).
• The return cannot be filed when there is no additional tax outgo i.e. when the tax liability is adjusted with TDS credit/ losses and you do not have any additional tax liability.
• Updated return cannot filed in case of nil return/loss return.

Computation of Income and Tax liability

• Identify any undisclosed income, omitted income sources, or errors in past returns.
• Recompute the total income considering all heads and deductions.
• Compute the additional tax payable, including:
  • Regular tax liability
  • 50% additional tax on the due amount (since this is the second year after the original filing due date)
  • Interest and penalty, if applicable
  • Late filing fees, if applicable

Reconciliation

Reconcile income, TDS, and other transactions with Form 26AS, AIS and TIS.

Payment of Tax under Section 140B

If additional tax liability arises due to the updated return, ensure that the additional taxes are paid before filing the updated return and verify the payment through Challan No. 280.

What are the fallouts of not filing updated returns?

Failure to file an Updated Return (u/s 139(8A)) for Assessment Year (AY) 2022-23 within the prescribed timeline can have several consequences, depending on the taxpayer’s compliance status, pending obligations, and unreported income. Below are the key fallouts of not filing the updated return for AY 2022-23:

• Inability to Correct Omissions or Errors: If you missed reporting any income, deductions, or other information in the original, belated, or revised return, you lose the chance to rectify those errors by filing an updated return which could lead to potential scrutiny or reassessment later if the discrepancies are flagged by the tax department based on Form 26AS, AIS (Annual Information Statement), or TIS (Taxpayer Information Summary).
• Exposure to Reassessment Proceedings (u/s 148): Non-filing of an updated return may prompt the Income Tax Department to initiate reassessment proceedings under Section 147 (for income escaping assessment), especially if unreported income comes to their notice during scrutiny, data analysis, or third-party reporting. Higher penalties, additional interest, and tax liabilities may be imposed after reassessment.

• Higher Penalties and Interest on Unreported Income: If undisclosed income is detected later, the taxpayer may face:
  • Penalty of 50% to 200% on tax due on concealed income under Section 270A (Penalty for Underreporting/Concealment).
  • Interest under Sections 234A, 234B, and 234C on unpaid tax.
  • If filing is deliberately avoided, prosecution provisions under Section 276CC (for willful non-filing) may apply, especially if tax evasion exceeds ₹25,000.
• Missed Chance to Mitigate Additional Tax Liability (Section 140B): By filing an updated return within the specified timeline:
  • You could have paid only 25% or 50% additional tax on the additional liability (as per the timeline).
  • Missed Deadline Fallout: If discrepancies are discovered later, the liability could escalate due to higher penalties and interest.
• Loss of Credibility and Increased Audit/Scrutiny Risk: Non-compliance reduces the taxpayer’s credibility and increases the likelihood of:
  • Detailed scrutiny assessment.
  • Higher tax audits in subsequent years due to poor compliance history.
• Prosecution Risk (in Severe Cases): If there is deliberate tax evasion, prosecution proceedings may be initiated under Section 276CC, leading to:
• Imprisonment of up to 7 years and a fine if the unpaid tax exceeds ₹25,000.

In any other case, imprisonment may extend up to 2 years.