What is an updated return, who can file it and are there any penalties to pay?

Taxpayers will now be able to correct errors or report income that they failed to    report, for an additional period of up to two years.

This can be done via an updated return, and taxpayers who did not file an original return can also make use of this facility.

 However, this carries steep penalties, and the later you file, the worse it gets.

Here’s everything you need to know about the updated return announced in Budget 2022.The provisions of updated return are applicable from April 1, 2022.

 The Indian government announced an option for taxpayers to correct their income tax returns via the new updated return. As the name suggests, this return allows taxpayers to correct any omissions or errors in their income tax returns, discovered after the time limit for filing the revised return has lapsed.

It is worth noting that you can file an updated return even if you did not file the original return, which is an improvement over the concept of revised return, according to Abhishek Rastogi, partner at Khaitan & Co., a corporate law firm.

Here’s everything you should know about the updated return.

What is an updated return?

Finance Minister Nirmala Sitharaman proposed a new clause that will allow taxpayers to file ‘updated’ returns to correct omissions and errors in their original tax returns, within two years from the end of the relevant assessment year.

This proposal allows taxpayers to avoid lengthy processes, which are involved in assessing and taxing income that has not been disclosed or assessed.

How is updated return different from revised return?

The Income Tax Act provisions allow taxpayers to revise their returns, but here’s how an updated return is different from a revised return:

1.  Updated return can be filed even if you have not filed your original return, while revised return cannot be filed without filing the original return.

2. Updated return can be filed only if there is an additional tax liability, while revised return has no such restrictions.

3. Updated return can be filed within two years from the end of the relevant assessment year, while revised return has to be filed before three months of the end of the relevant assessment year.

4.     While there are no penalties for filing a revised return, an updated return carries a penalty of 25-50% of the tax liability.

Who can file an updated return?

An updated return can only be filed if it results in the assessment of additional tax liability – that is, if the update reduces your tax outgo, or results in a return of loss, you cannot file it.

Essentially, an updated return cannot result in a decrease of the income you reported in your original or revised return.

Apart from this, taxpayers against whom search under Section 132 or 133A has been initiated or a notice has been served, cannot file an updated return.

What are the penalties for filing an updated return?

If you file the updated return within 12 months of the end of the relevant assessment year, you will be liable to pay a penalty equivalent to 25% of the tax and interest payable.

If you do file the updated return between 12 and 24 months of the end of the relevant assessment year, the penalty will increase to 50%.

If you file the updated return within 12 months of the end of the relevant assessment year, you will be liable to pay a penalty equivalent to 25% of the tax and interest payable.

Source:https://www.businessinsider.in/