Missed filing ITR for last few years? Here's how ITR-U can help you avoid bigger penalties

Taxpayers who have missed filing income tax returns for previous years still have an opportunity to regularise their tax records through the Updated Income Tax Return (ITR-U) mechanism. Introduced under Section 139(8A) of the Income Tax Act, the provision allows individuals to voluntarily disclose missed income and correct errors in returns filed earlier.

The facility has gained added significance after Budget 2026 proposed easing certain restrictions, allowing taxpayers to file updated returns even after reassessment proceedings have begun, albeit with an additional tax burden.

What is ITR-U?

ITR-U is a special return filing mechanism that enables taxpayers to rectify omissions or inaccuracies in previously filed returns or to file returns for years they had completely missed.

Unlike regular returns, which can only be filed for the current assessment year during the prescribed window, ITR-U allows taxpayers to update returns for up to four years from the end of the relevant assessment year.

For instance, taxpayers can currently file updated returns for Assessment Years (AY) 2022-23, 2023-24, 2024-25 and 2025-26.

For FY2024-25, the ITR-U filing window opened on April 1, 2026, and will remain available until March 31, 2030.

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Who can file an updated return?

Taxpayers can use ITR-U if they:

Missed filing the original return and the belated return deadline.
Underreported income.
Reported income under the wrong head.
Paid tax at an incorrect rate.
Want to reduce carried-forward losses.
Seek to reduce unabsorbed depreciation or tax credits under Sections 115JB and 115JC.

A taxpayer is allowed to file only one updated return for each assessment year.

Why filing voluntarily matters

Experts say taxpayers should not wait for a notice from the Income Tax Department before regularising their returns.

With increased digital tracking of financial transactions, including bank accounts, securities investments, property purchases and high-value spending, unreported income is more likely to be detected.

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Voluntary filing through ITR-U can help taxpayers avoid prolonged litigation and potentially higher penalties.

Skipping income tax returns for two or more consecutive years may increase the likelihood of attracting scrutiny from the department.

Additional taxes increase with delay

Filing an ITR-U is not free from consequences. Taxpayers are required to pay the outstanding tax, applicable interest and an additional tax, which increases with the length of the delay.

The extra levy acts as a penalty for delayed compliance and rises depending on when the updated return is filed.

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Budget 2026 relaxes rules

A major change proposed in Budget 2026 allows taxpayers to file an updated return even after reassessment proceedings have started.

Earlier, the initiation of reassessment generally prevented taxpayers from voluntarily updating their returns. Under the new proposal, taxpayers can still do so but will have to pay an additional 10% tax over and above the existing additional taxes applicable on ITR-U filings.

The government said the move is aimed at reducing disputes and litigation.

Another change effective from March 1, 2026, allows taxpayers to use ITR-U for reducing carried-forward losses.

Who cannot file ITR-U?

The facility cannot be used in certain situations, including:

To file a nil return or loss return.
To claim or increase a refund.
To reduce the overall tax liability.
If an updated return has already been filed for that assessment year.
In cases involving search and seizure operations or certain surveys conducted by tax authorities.
Where assessment, reassessment or revision proceedings have already been completed in specified cases.

With a four-year window now available, tax experts say ITR-U serves as an important compliance tool for taxpayers seeking to clean up past omissions before they turn into larger tax disputes.

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