CBDT notifies ITR-U: Four years to rectify tax mistakes with new form; check penalties, filing deadlines

The Central Board of Direct Taxes (CBDT) has announced the implementation of the Income Tax Updated Return form, known as ITR-U, following amendments introduced in the Union Budget 2025. Effective from April 1, 2025, the ITR-U form provides taxpayers an extended timeframe to amend past errors in their tax filings. The new rules are designed to facilitate compliance and revenue correction without reducing tax liabilities or claiming refunds.

In accordance with the updated regulations, taxpayers who missed the original deadline for filing their returns or need to correct past errors now have up to 48 months to file an updated return. This extension from the previous 24-month window allows taxpayers more time to rectify their filings, thus supporting the government's goal of enhanced compliance. For instance, for the financial year 2024-25, the assessment year is 2025-26, and the ITR-U can be filed until March 31, 2030.

Who can file ITR-U

The ITR-U form serves taxpayers who either did not file an original return or filed one incorrectly. It is particularly beneficial for those who reported incorrect income, selected the wrong income head, or applied the wrong tax rate, providing them an opportunity to correct these inaccuracies. However, it is important to note that ITR-U cannot be used to lower declared income or claim refunds; it is only for disclosing additional income or correcting mistakes.

Filing of ITR-U

The revised rules specify that the ITR-U can be filed only after the end of the relevant assessment year. The standard deadline for submitting an original Income Tax Return (ITR) for non-audit cases is 31 July of the applicable assessment year. If this deadline is not met, taxpayers have the option to file a belated return until 31 December of the same assessment year. However, after this deadline passes, the only available course of action is to submit an updated return (ITR-U).

For example, taxpayers for the financial year 2024-25 have until July 31, 2025, to file their original return. If they miss this deadline, a belated return can be filed by December 31, 2025. Should these deadlines be unmet, the updated return, via ITR-U, becomes viable from April 1, 2026.

When filing an ITR-U, the taxpayer must choose the period from a dropdown menu. It is also essential to verify the filed ITR-U.

Penalties apply to the filing of ITR-U, varying depending on how promptly the adjustment is made. The penalties range from 25% to 70% of the additional tax and interest, escalating based on the timing of the submission. Filing within the first year attracts a 25% penalty, increasing to 50% if filed by the second year, 60% by the third year, and 70% by the fourth year. This structured penalty system is intended to incentivise timely compliance.

The Finance Act 2025 has amended Section 139(8A), extending the filing period for updated returns from 24 months to 48 months. This substantial change aims to provide taxpayers with a broader window to address any inaccuracies in their returns, enhancing the accuracy of tax reporting. This extension is a significant move towards simplifying and improving the tax filing process.

Taxpayers filing an updated return are required to select the period of filing from a drop-down menu and ensure verification of the return. The extended window for filing ITR-U is a strategic decision to encourage voluntary compliance and reduce litigation. This move aligns with the government’s broader objective of improving the integrity and efficiency of the tax system.