In Budget 2022, presented on February 1, 2022, Union Finance Minister Nirmala Sitharaman introduced the concept of 'updated return' as a step towards encouraging voluntary compliance, reducing litigation and deterring tax evasion.
What is an updated return?
Currently, a taxpayer has the option to revise its tax return three months prior to the end of the relevant assessment year (AY). In case the original return is not filed, a taxpayer can file a belated tax return three months prior to the end of the relevant AY and there is no provision to revise the return in such cases.
Also Read: Income-Tax: Taxpayers can update ITRs only once in an assessment year, says official
For example, the due date for filing the original return and/or the revised/belated return for AY 2022-23 will be as under:
This gives an additional time of about five months to an individual taxpayer, two months to a corporate assessee liable to audit and one month to a taxpayer to whom transfer pricing provisions apply, to file a revised/belated return. It is a very short timeframe for a taxpayer to make any changes in the tax return in case of any errors, omissions, or mistakes.
In order to facilitate ease of compliance along with a litigation free environment, the Finance Bill, 2022 now proposes to provide additional time to the taxpayer to review his/her tax return for any errors, omissions, or mistakes and file an 'updated return'. The updated return can be filed within two years from the end of the relevant AY, irrespective of whether an original tax return was filed.
For example, the due date for filing an updated return for AY 2022-23 will be as under:
Under which circumstances can an updated return be filed?
There are certain conditions attached to and restrictions imposed on filing of the proposed 'updated return', which are listed below:
A simplistic calculation of the additional tax liability is illustrated below:
Also Read: Budget 2022: Updated income tax returns can be filed within 2 yrs of deadline
An updated return cannot be filed if:
Revised/belated return vs. updated return
The taxpayer should be mindful of certain key differences between the existing options available for correcting/filing their return of income and the proposed 'updated return':
Benefits of filing an updated return
The proposal to file an updated return offers the following to the taxpayers:
Aspects to be clarified
There are certain aspects of the updated return which may require clarifications from the government:
The proposal to file an updated return is a welcome move to reduce litigation, especially for taxpayers who have missed the deadline to file a tax return and taxpayers who have any unpaid taxes due to an error or omission at the time of filing their return.
A major dampener for the taxpayers is the requirement for the additional tax liability of filing the 'updated return'. Not all errors or omissions lead to an enhanced income or tax outflow for a taxpayer.
Some errors/omissions may even reduce a taxpayer's income or maybe only for the purpose of correctly reporting information that is required to be disclosed in the income-tax return.
However, such situations are not currently covered under the ambit of the proposed provisions for filing an 'updated return'.
Therefore, the proposed provisions for filing an 'updated return' do not entirely address the concerns or issues with having a limited period of time to file a revised return of income/rectifying errors or omissions in the return of income filed.
In the Budget speech, the FM stated that mistakes or omissions may have been made by the taxpayers while estimating their income for tax payment and in order to provide the taxpayers with an opportunity to correct such errors, it is proposed to introduce the 'updated return' provisions.
Accordingly, if the intent behind introducing the concept of 'updated return' is to be followed in the true spirit, then even a return that benefits the taxpayer should be allowed to be filed as an 'updated return'.
In light of the above, it will be interesting to see whether this tax reform actually benefits the taxpayers at large and whether the government achieves its motives for introducing the same.
(Rajesh H. Gandhi is Partner, Deloitte India; Utkarsh Trivedi is Director with Deloitte Haskins & Sells LLP; Vinita Abhyankar is Manager with Deloitte Haskins & Sells LLP; and Dhrti Manek is Tax Senior with Deloitte Haskins & Sells LLP.)
Copyright©2022 Living Media India Limited. For reprint rights: Syndications Today