The government has given some relief to individual taxpayers by extending the time limit for filing updated Income Tax Returns (ITR) from two years to four years. Before filing such a return, one must consider eligibility, additional tax liability, interest and the nature of corrections required.
An updated ITR can be filed within four years, but it can’t be used to claim a refund or reduce tax liability. An assessee cannot claim carry forward of unreported losses from the sale of securities or real estate while filing an updated ITR. As per Section 139(8A), an assessee cannot file a loss return and reduce total tax liability as determined under the original, revised, or belated return.
If an assessee discovers unreported income or incorrect claims and does not file an updated ITR within the extended window, it can lead to penalties. Scrutiny notices under Sections 147 or 148 may be issued if discrepancies are detected through data analytics, AIS, or third-party sources. “Penalties of up to 200% of the tax due, along with interest under Sections 234A, 234B, and 234C, can be imposed, and in cases of willful tax evasion, prosecution under Section 276C may lead to imprisonment of up to seven years,” says Amit Maheshwari, tax partner, AKM Global, a tax consulting firm.
Factors to consider
Individual taxpayers should note the time limit for filing of updated return. Although the government has extended the timeline to four years, the sooner the updated return is filed, the less one has to deal with potential problems.
Vishwas Panijar, partner, Nangia Andersen LLP, says if the return is showing loss or the assessment for the year under consideration has been completed, updated ITR cannot be filed. “Taxpayers should calculate the additional tax liability including potential penalties and interest before filing the updated ITR,” he says. Interest under Section 234A will be charged on the tax due on the income not or under reported.
There is no restriction on filing an updated return if a loss exists under a particular head of income, provided the total income remains positive. Generally, losses from sale of securities are treated as capital loss which can be carried forward for eight years.
The assessee can report these losses in the updated return. However, the total income in the updated return must be equal to or more than the income reported in the original return filed under Section 139(1).
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