ITR-U for Missed Returns: Legal Consequences and Compliance Strategies

Failure to file an Income Tax Return (ITR) within the prescribed deadlines can lead to significant legal and financial repercussions. Non-compliance may result in penalties, interest charges, income tax notices, and, in severe cases, prosecution.

Under the Income Tax Act, if the tax liability exceeds Rs. 25,000 and the taxpayer fails to file the ITR, they may face rigorous imprisonment ranging from six months to seven years, along with a fine. If the tax liability is below Rs. 25,000, imprisonment may range from three months to two years, in addition to a fine.

To facilitate tax compliance, the Central Board of Direct Taxes (CBDT) provides an opportunity for taxpayers to rectify omissions or file missed returns through the Updated Income Tax Return (ITR-U). This provision, introduced in the Union Budget 2022 under Section 139(8A), allows taxpayers to voluntarily correct their tax filings. Understanding ITR-U TR-U, or Updated Income Tax Return, is a mechanism enabling taxpayers to amend errors in previously filed ITRs or to file returns that were not submitted within the due dates. Initially, this provision allowed for filing within two years from the end of the relevant assessment year. However, under the Finance Act 2025, this period has been extended to four years.

Taxpayers are permitted to file only one updated return per assessment year. The last date for filing ITR-U for Assessment Year 2022-23 is March 31, 2025, offering a critical opportunity to rectify past non-compliance.

Eligibility for Filing ITR-U

All categories of taxpayers, including individuals, Hindu Undivided Families (HUFs), firms, LLPs, companies, Associations of Persons (AOPs), and Bodies of Individuals (BOIs), can file an updated return under Section 139(8A), provided they meet the following conditions:

• The taxpayer has either not filed a return previously or needs to rectify errors in the originally filed return.

• The updated return must include undisclosed additional income, and the taxpayer must pay the applicable taxes.

An updated return may be filed in the following cases:

• Non-filing of an ITR, including missing both the original and belated return deadlines.

• Incorrect declaration of income.

• Misclassification under the wrong head of income.

• Payment of tax at an incorrect rate.

• Reduction of carried-forward losses.

• Reduction of unabsorbed depreciation.

• Reduction of tax credit under Sections 115JB/115JC.

Ineligibility for Filing ITR-U

Taxpayers cannot file an updated return in the following circumstances:

• If an updated return has already been filed for the same assessment year.

• If the taxpayer intends to file a NIL return or a loss return.

• If the purpose is to claim or enhance a refund.

• If the intent is to reduce tax liability.

• If search proceedings under Section 132 have been initiated.

• If a survey has been conducted under Section 133A.

• If books, documents, or assets have been seized under Section 132A.

• If an assessment, reassessment, revision, or recomputation is pending or concluded.

• If there is no additional tax payable (e.g., tax liability adjusted with TDS credit or losses).

• If carried-forward losses, unabsorbed depreciation, or tax credits require adjustments, ITR-U must be filed for all relevant years. Additional Tax Liability for ITR-U Filing Filing an updated return necessitates payment of additional tax, which varies based on the time elapsed since the end of the assessment year:

  • Within 12 months: 25% of the additional tax payable.

  • Within 24 months: 50% of the additional tax payable.

  • Within 36 months: 60% of the additional tax payable.

  • Within 48 months: 70% of the additional tax payable.

This additional tax serves as a compliance mechanism, ensuring that taxpayers regularize their filings with appropriate financial accountability.

Conclusion

ITR-U offers taxpayers a structured approach to rectify past tax filing errors and meet compliance obligations. Understanding the provisions and adhering to the prescribed guidelines can help avoid severe penalties, legal consequences, and financial burdens. Taxpayers are encouraged to leverage this provision efficiently, ensuring that all undeclared income is appropriately disclosed and liabilities settled in a timely manner. Professional consultation is advisable to navigate complex tax matters and ensure compliance with the latest legal amendments.