‘Updated return’ law is not an amnesty scheme for taxpayers

Budget 2022 introduced a new law of ‘updated return’. Under this, a taxpayer will have an opportunity to correct any errors or omissions while filing the return. The updated return can be filed within two years from the end of the relevant assessment year. 

Union Budget 2022 proposed the procedure stating that the taxpayers may miss out on declaring their income due to genuine reasons, and this window will give them a chance to rectify the error. The window for updating returns will be a permanent facility, wherein taxpayers will be allowed to rectify any discrepancy or omissions in their income tax return within two years of filing, subject to payment of additional taxes. 

The revenue secretary clarified that ‘ updated return’ is not an amnesty scheme. The taxpayers can file the updated return by payment of an additional 25% or 50% of taxes. 

The law states to pay an additional 25% of tax and interest if the return is updated within 12 months after the due date. An extra 50% tax and interest will have to be paid if the return is updated after 12 months but before 24 months from the end of the relevant assessment year. 

Let us understand this using an example. Suppose you forget to report an income of Rs.50,000 and fall under the 30% tax bracket, then additional tax liability of Rs.15,000 would arise on such omitted income. Under the new law, the taxpayer can update their return by payment of 25% or 50% of extra tax, depending on when the updated return is filed. If it is filed within 12 months, then an additional Rs.3,750 will have to be paid. If it is updated after 12 months but before 24 months, then Rs.7,500 additional tax will have to be paid (plus interest amount).   

According to the standard rule, the return filing date of individuals is the July-end of the assessment year. One still can file the return till 31st December of the assessment year by making a late payment penalty. After this date is passed, currently taxpayers cannot file their returns. With this new law, taxpayers will get a chance to correct their mistakes.

Many taxpayers genuinely might miss out to report certain income or would have gone abroad and missed filing their return. This scheme will be useful for the taxpayers on payment of additional tax. 

However, the law states that if the tax department notices any omission and issue a tax notice for the same, the taxpayer will not have the option to file the updated return. 

The new law aims to repose trust in the taxpayers. The additional tax is imposed so that the taxpayers do not think they can file their returns later. The law seeks not to make it an amnesty scheme but to encourage voluntary tax compliance amongst the taxpayers.  

For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in