Synopsis: In the 2025 Budget, Finance Minister Nirmala Sitharaman proposed extending the timeframe for filing updated Income Tax Returns (ITRs) from the current 24 months to 48 months, allowing taxpayers additional time to correct inaccuracies and disclose previously omitted income. This initiative aims to enhance voluntary compliance and ensure adherence to tax regulations.
The Indian government's commitment to fostering voluntary tax compliance has been evident through various initiatives.
A significant step in this direction was the introduction of the updated Income Tax Return (ITR-U) facility in 2022, which permitted taxpayers to rectify omitted or inaccurate income declarations under Section 139(8A) of the Income Tax Act, 1961.
Building upon its success, the 2025 Budget proposes a substantial extension to the filing timeframe for such returns.
Background of ITR-U
The ITR-U facility was introduced to encourage taxpayers to voluntarily disclose any income that was previously unreported or inaccurately reported. This provision was particularly beneficial for individuals who:
Did not submit a return despite having income above the taxable threshold.
Excluded certain income from their original return.
Misrepresented losses or refund claims.
By allowing taxpayers to correct these discrepancies, the government aimed to increase transparency and compliance within the tax system.
Proposed Extension in Budget 2025
In her 2025 Budget speech, Finance Minister Nirmala Sitharaman proposed extending the timeframe for filing updated ITRs from the existing 24 months to 48 months from the end of the relevant assessment year. This extension provides taxpayers with additional time to:
Address inaccuracies in their tax returns.
Disclose any previously overlooked income.
Ensure full adherence to tax regulations.
Additional Tax Implications
The proposal also outlines changes in the additional tax payable based on the timing of the updated return filing:
Within 12 months: An additional tax of 25% of the total tax and interest due.
After 12 months but within 24 months: An additional tax of 50%.
After 24 months but within 36 months: An additional tax of 60%.
After 36 months but within 48 months: An additional tax of 70%.
These escalating rates are designed to incentivize prompt corrections and disclosures by taxpayers.
Impact and Expert Opinions
Since the introduction of the ITR-U facility in 2022, approximately 9 million taxpayers have voluntarily updated their incomes by paying additional taxes.
This positive response has encouraged the government to further extend the timeframe during Budget 2025.
However, some experts believe that while the extended period encourages compliance, the steep additional tax rates may be burdensome.
Dr. Suresh Surana, a noted Chartered Accountant, commented, "Tax ranging from 25% to 70% of the tax and interest payable results in a very steep overall tax incidence. While the extended period would encourage compliance, it would have been better to keep the additional tax at 25%, which is adequate as a deterrent."
Conclusion
The proposed extension of the ITR-U filing deadline to 48 months reflects the government's ongoing efforts to promote voluntary tax compliance and provide taxpayers with ample opportunity to rectify past inaccuracies.
While the initiative offers increased flexibility, taxpayers should be mindful of the escalating additional tax rates and aim to address discrepancies promptly to minimize financial implications.
Disclaimer: This article is for informational purposes only and should not be construed as financial or legal advice. Tax laws are subject to change, and individuals are encouraged to consult with a qualified tax professional or refer to official government resources for the most current information.
