CBDT Clarifies Treatment of Earlier Assessment Years Under Updated Return Provisions

The Central Board of Direct Taxes (CBDT) has clarified the treatment of earlier assessment years under the provisions governing Updated Returns, providing greater clarity to taxpayers seeking to correct omissions or errors in previously filed income-tax returns.

The Updated Return mechanism, introduced under Section 139(8A) of the Income-tax Act, allows eligible taxpayers to voluntarily furnish an updated return of income within the prescribed time limit, subject to certain conditions and payment of additional tax.

Under the expanded framework, taxpayers can file an updated return within 48 months from the end of the relevant assessment year, as against the earlier limit of 24 months. The extension is intended to provide taxpayers with a longer opportunity to voluntarily disclose omitted income, correct errors and ensure tax compliance.

The additional income-tax payable depends on the time elapsed since the end of the relevant assessment year. Broadly, the additional tax is levied at the following rates:

• 25% of aggregate tax and interest where the updated return is filed within 12 months from the end of the relevant assessment year;

• 50% where filed after 12 months but within 24 months;

• 60% where filed after 24 months but within 36 months; and

• 70% where filed after 36 months but within 48 months.

The updated-return facility, however, is subject to statutory restrictions. An updated return generally cannot be used to declare a loss, reduce the tax liability already determined on the basis of an earlier return, or result in or increase a refund.

The clarification regarding earlier assessment years is particularly important because the extension of the time limit to 48 months has raised practical questions about the availability and application of the updated-return facility for older years.

Taxpayers and professionals should carefully examine the applicable statutory provisions, effective dates and eligibility conditions before filing an updated return, particularly where proceedings, assessments, searches, surveys or other specified circumstances may affect eligibility.

The Updated Return framework is aimed at encouraging voluntary tax compliance by allowing taxpayers additional time to rectify past omissions and disclose previously unreported income, while requiring payment of progressively higher additional tax for delayed compliance. CA Sansaar