/ ITR

Updated Return can sometimes be costlier than a reassessment

Can updating ITR cost you more than a reassessment

Updated Return (ITR-U) Can sometimes be costlier than a reassessment.

Can updating ITR cost you more than a reassessment?

Yes, updating an Income Tax Return (ITR) using ITR-U (Updated Return) can sometimes be costlier than a reassessment initiated by the Income Tax Department. The proposed extension of the ITR-U (Updated Return) filing window from two years to four years gives taxpayers additional time to rectify errors. Here’s why:

1. Additional Tax on Updated Return (ITR-U)

  • Under Section 140B, if you file an updated return:
    • You pay an additional tax of 25% on the due tax if filed within 12 months.
    • If filed between 12-24 months, the additional tax is 50% of the due tax.
    • This proposed extension to 48 months may increase costs further
    • This-extra burden makes ITR-U costly compared to reassessment.

2. Reassessment Tax Implications

  • If the IT Department reassesses your income, the tax demand includes:
    • The original tax due with interest under Section 234A/B/C.
    • A possible penalty (ranging from 50% to 200% of tax evaded, depending on intent).
    • However, reassessment does not always lead to penalties, especially if underreported income was unintentional.

3. Late Filing Penalties

  • Missing the ITR deadline means:
    • A late fee of ₹5,000 (₹1,000 if income < ₹5 lakh).
    • Loss of key benefits like carrying forward losses.
    • If you missed reporting income, compare ITR-U vs. potential reassessment costs before acting.
    • Filing on time is always the best strategy to avoid high penalties.
  • Limited Scope:
    • Cannot be used to claim higher refunds or increased loss carryforwards.
    • Not allowed if tax liability decreases or in cases of ongoing audits, reassessments, or investigations under various tax laws.
  • Risk of Scrutiny:
    • Filing ITR-U may trigger reassessment of past returns.
    • Tax authorities could question large corrections, especially for capital gains, business income, or unexplained transactions.
  • Mitigates Prosecution & Penalties:
    • Helps avoid 200% penalties if undisclosed income is later detected by the department.
    • Reduces risk under Section 276CC (prosecution for failure to file returns).

Which is More Expensive?

  • If voluntary disclosure is made early → ITR-U can be cost-effective.
  • In case reassessment occurs without penalty → It could be cheaper than ITR-U.
  • If significant undisclosed income is found later → Reassessment may impose higher penalties.

Conclusion

If you missed reporting income, consider the cost of ITR-U vs. potential reassessment penalties. Planning tax filings wisely helps avoid unnecessary financial strain. Would you like assistance in evaluating whether ITR-U or waiting for reassessment is better in a specific scenario?

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