The Finance Act, 2025 has introduced a significant change in the time limit for filing Updated Income Tax Returns (ITR-U). In a move aimed at further encouraging voluntary tax compliance, the government has extended the window for filing updated returns from 24 months to 48 months from the end of the relevant assessment year (AY).
A message has already been displayed on the Income Tax e-filing portal, stating:
“Facility for filing updated returns for the AYs 2021-22 and 2022-23 as per Finance Act, 2025 will be provided shortly.”
Let’s understand what these changes mean for taxpayers.
What is an Updated Return (ITR-U)?
Introduced in Budget 2022, section 139(8A) of the Income Tax Act allows a taxpayer to voluntarily file a revised returneven after the original due dates have passed — including when no return was filed earlier. This is done by filing an Updated Return (ITR-U), to rectify omissions or errors and declare any additional income.
However, filing an updated return comes with an additional tax liability, based on how late it is filed.
Old vs New Time Limits for ITR-U Filing
| Filing Time From End of AY | Earlier Rule (Till FY 2024-25) | New Rule (From FY 2025-26) |
|---|---|---|
| 0–12 months | 25% additional tax | 25% additional tax |
| 12–24 months | 50% additional tax | 50% additional tax |
| 24–36 months | ❌ Not allowed | ✅ 60% additional tax |
| 36–48 months | ❌ Not allowed | ✅ 70% additional tax |
Note: The additional tax is calculated on the aggregate of tax and interest payable on the additional income declared.
Example: How Additional Tax Applies Under New Rule
Let’s say a taxpayer wants to declare additional income in AY 2021–22 and the total tax and interest comes to ₹1,00,000:
- If filed within 12 months from end of AY → ₹1,00,000 + ₹25,000 (25%) = ₹1,25,000
- If filed between 12–24 months → ₹1,00,000 + ₹50,000 (50%) = ₹1,50,000
- If filed between 24–36 months → ₹1,00,000 + ₹60,000 (60%) = ₹1,60,000
- If filed between 36–48 months → ₹1,00,000 + ₹70,000 (70%) = ₹1,70,000
Important Exception: Notices Under Section 148A
To prevent misuse of the provision, the updated rules prohibit filing ITR-U after 36 months if a taxpayer has received a notice under Section 148A (show cause before reassessment) of the Income Tax Act. However, there is one key relief:
- If an order is passed under Section 148A(3) that the case is not fit for reassessment under Section 148, then the taxpayer can still file ITR-U up to 48 months.
When Will These Amendments Come into Effect?
These changes will be effective from April 1, 2025, and will apply to Updated Returns filed for AY 2021-22 onwards.
The Income Tax Department has also stated that the portal will soon be updated to allow filing of ITR-U for the extended time periods under the new rules.
Key Takeaways for Taxpayers
- Extended compliance window: You now get up to 4 years to correct your tax return and declare any undisclosed income voluntarily.
- Higher additional tax: The more you delay, the more you pay — up to 70% additional tax after 3 years.
- Check for notices: If you’ve received a notice under Section 148A, be cautious. You may not be eligible unless the notice is dropped.
- Opportunity to avoid litigation: File your ITR-U and regularize your tax position voluntarily before the tax department comes knocking.
This move by the government gives taxpayers more time and flexibility to correct their tax records, but it comes at a rising cost. With the Income Tax portal soon to be updated, this is a golden opportunity to rectify old defaults and avoid penalties or prosecution.
If you’re unsure whether you should file an updated return, it’s best to consult a tax professional.
Visit www.cagurujiclasses.com for practical courses
