All about ITR-U & related amendment in the Budget 2025

Summary on the ITR-U & Amendments in the Budget 2025

Introduction: ITR-U allows taxpayers to rectify mistakes or omissions in previously filed returns, including original, belated, or revised returns under Section 139(8A) of the Income Tax Act. It serves as an option for taxpayers to ensure accurate tax filing and compliance. With the Budget 2025 amendment, the time limit for filing ITR-U has been extended from 2 years to 4 years from the end of the relevant assessment year.  Last Date to File ITR-U for FY 2023-24 (AY 2024-25): 31st March 2027

Who Can File ITR-U?

Income tax law Allowed to file ITR U if:

• Missed filing the original return within the due date.
• Declaring additional income not reported earlier.
• Paying additional tax liability.

When Updated Return Can Be Filed: Purpose:

• Failure to file on time: If the taxpayer misses the original or belated deadline. Can be filed within 24 months from the end of the relevant assessment year.
• Mistakes or omissions: Errors or omissions in any previously filed return. Allows taxpayers to rectify errors or omissions in their previously filed returns.

When Updated Return Cannot Be Filed:

Restrictions on Filing ITR-U: Cannot file ITR-U in these cases:

• To claim a refund or increase refund amount.
• If no additional tax is payable (Nil return not allowed).
• For carrying forward or increasing losses.
• If total tax liability is covered by TDS credit.
• Already filed ITR-U: A taxpayer cannot file an updated return for the same assessment year if it’s already been filed.
• Tax loss or reduced liability: If the updated return would result in a tax loss or a reduction of the tax liability.
• Increased refunds: If the updated return increases the refund amount.
• Ongoing investigation: If a tax investigation is underway (under Sections 132 or 133A).
• Pending or completed assessments: If an assessment or reassessment is pending or has been completed.
• Change in ITR Form Type: If your income structure changes (e.g., ITR-1 to ITR-3 due to business income), ITR-U allows you to switch forms.

Amendments in Budget 2025 related to ITR-U:

The window to file an ITR-U has been extended from 2 years to 4 years from the end of the relevant assessment year, giving taxpayers more time to rectify errors. This change is especially beneficial for taxpayers who need more time to correct their returns or who missed earlier filing deadlines. The revised penalties also aim to encourage quicker rectifications while still allowing a window for correction without severe punitive measures. This is a well-detailed explanation of ITR-U and the updates introduced in Budget 2025

• Extended Deadline: Taxpayers now have 4 years instead of 2 to file an updated return.
• Gradual Penalty Structure: Additional tax increases from 25% to 70% based on when ITR-U is filed.
• ITR-U vs. Belated/Revised Returns – If you miss both, you can still file ITR-U but cannot claim refunds or reduce tax liability.
• Who Can and Cannot File ITR-U – Clear differentiation based on tax compliance status, errors, and legal proceedings.
• Last Dates – March 2025 for AY 2022-23 and March 2027 for AY 2024-25. Here’s the updated timeline for filing ITR-U:

Financial Year,	Assessment Year:	Previous ITR-U Deadline (2 years)	New ITR-U Deadline (4 years)
FY 2020-21	AY 2021-22	31st March 2024	31st March 2026
FY 2021-22	AY 2022-23	31st March 2025	31st March 2027
FY 2022-23	AY 2023-24	31st March 2026	31st March 2028
FY 2023-24	AY 2024-25	31st March 2027	31st March 2029

Now, taxpayers get 4 years instead of 2 years to rectify their returns. Would you like a breakdown of the penalties for filing at different intervals?

Penalty Amendments:

• Within 12 months: 25% of average tax and interest due.
• Within 24 months: 50% of average tax and interest due.
• Within 36 months: 60% of average tax and interest due.
• Within 48 months: 70% of average tax and interest due.

How to strategically use ITR-U to avoid unnecessary penalties?

ITR-U is useful for voluntary tax correction but comes at a cost. Plan your tax filings correctly to avoid additional penalties and interest. Cannot be used for refunds, loss carryforwards, or if no extra tax is payable.

The extension of the filing window for ITR-U and the gradual penalty structure offer taxpayers more flexibility to correct past mistakes. This will promote timely tax compliance and reduce the risk of inadvertent errors in filing returns, ensuring that tax liabilities are properly reported.

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