The Union Budget 2022 has introduced the concept of filing of ‘Updated Return’ by assessees which are different from the contemporary filing of belated return or revised return.
While presenting the Union Budget 2022, Finance Minister Nirmala Sitaraman announced the introduction of new ‘Updated return’ in the direct tax proposals.
India is growing at an accelerated pace and people are undertaking multiple financial transactions. The Income Tax Department has established a robust framework of reporting taxpayers' transactions. In this context, some taxpayers may realize that they have committed omissions or mistakes in correctly estimating their income for tax payment.
To provide an opportunity to correct such errors, she proposed a new provision permitting taxpayers to file an Updated Return on payment of additional tax.
This updated return can be filed within two years from the end of the relevant assessment year.
Presently, if the department finds out that some income has been missed out by the assessee, it goes through a lengthy process of adjudication. Instead, with this proposal now, there will be a trust reposed in the taxpayers that will enable the assessee herself to declare the income that she may have missed out earlier while filing her return. It is an affirmative step in the direction of voluntary tax compliance.
For the purpose of filing of an updated return, section 139(8A) is proposed to be inserted in the Income Tax Act, 1961 (‘Act’) by the Finance Bill, 2022.
In view of the proposed sub-section (8A) of section 139, consequential amendments in section 144, section 153, section 234A and section 234B and 276CC have also been made. A new section 140B is also proposed to be inserted in the Act.
Amendment of section 139.
38. In section 139 of the Income-tax Act,–
(i) after sub-section (8), the following sub-section shall be inserted, namely:––
“(8A) Any person, whether or not he has furnished a return under sub-section (1) or sub-section (4) or sub-section (5), for an assessment year (herein referred to as the relevant assessment year), may furnish an updated return of his income or the income of any other person in respect of which he is assessable under this Act, for the previous year relevant to such assessment year, in the prescribed form, verified in such manner and setting forth such particulars as may be prescribed, at any time within twenty-four months from the end of the relevant assessment year:
Provided that the provision of this sub-section shall not apply, if the updated return,––
(a) is a return of a loss; or
(b) has the effect of decreasing the total tax liability determined on the basis of return furnished under sub-section (1) or sub-section (4) or sub-section (5); or
(c) results in refund or increases the refund due on the basis of return furnished under under sub-section (1) or sub-section (4) or sub-section (5), of such person under this Act for the relevant assessment year:
Provided further that a person shall not be eligible to furnish an updated return under this sub-section,
where––
(a) a search has been initiated under section 132 or books of account or other documents or any assets are requisitioned under section 132A in the case of such person; or
(b) a survey has been conducted under section 133A, other than sub-section (2A) of that section, in the case such person; or
(c) a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A in the case of any other person belongs to such person; or
(d) a notice has been issued to the effect that any books of account or documents, seized or requisitioned under section 132 or section 132A in the case of any other person, pertain or pertains to, or any other information contained therein, relate to, such person,
for the assessment year relevant to the previous year in which such search is initiated or survey is conducted or requisition is made and two assessment years preceding such assessment year:
Provided also that no updated return shall be furnished by any person for the relevant assessment year, where––
(a) an updated return has been furnished by him under this sub-section for the relevant assessment year; or
(b) any proceeding for assessment or reassessment or recomputation or revision of income under this Act is pending or has been completed for the relevant assessment year in his case; or
(c) the Assessing Officer has information in respect of such person for the relevant assessment year in his possession under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 or the Prohibition of Benami Property Transactions Act, 1988 or the Prevention of Money-laundering Act, 2002 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the same has been communicated to him, prior to the date of furnishing of return under this sub-section; or
(d) information for the relevant assessment year has been received under an agreement referred to in section 90 or section 90A in respect of such person and the same has been communicated to him, prior to the date of furnishing of return under this sub-section; or
(e) any prosecution proceedings under the Chapter XXII have been initiated for the relevant assessment year in respect of such person, prior to the date of furnishing of return under this sub-section; or
(f) he is such person or belongs to such class of persons, as may be notified by the Board in this regard.”;
(ii) in sub-section (9), in the Explanation, after clause (c), the following clause shall be inserted, namely:––
“(ca) the return is accompanied by the proof of payment of tax as required under section 140B, if the return of income is a return furnished under sub-section (8A);”.
Clause-wise explanation to section 139(8A) related to the filing of Updated Returns
Clause 38 seeks to amend section 139 of the Income-tax Act relating to return of income.
It is proposed to insert sub-section (8A) in the said section to provide that any person, whether or not he has furnished a return under sub-section (1) or sub-section (4) or sub-section (5), for an assessment year (herein referred to as the relevant assessment year), may furnish an updated return of his income or the income of any other person in respect of which he is assessable under the Income-tax Act, for the previous year relevant to such assessment year, in the prescribed form, verified in the prescribed manner and setting forth such particulars as may be prescribed, at any time within twenty-four months from the end of the relevant assessment year.
It is further proposed to provide that the proposed sub-section (8A) shall not apply, if the updated return, is a return of a loss or has the effect of decreasing the total tax liability determined on the basis of return furnished under sub-section (1) or sub-section (4) or sub-section (5) or results in refund or increases the refund due on the basis of return furnished under sub-section (1) or sub-section (4) or sub-section (5), of such person under this Act for the relevant assessment year.
It is also proposed that such person shall not be eligible to furnish an updated return under this sub-section, where a search has been initiated under section 132 or books of account or other documents or any assets are requisitioned under section 132A in the case of such person or a survey has been conducted under section 133A other than sub-section (2A) of that section, in the case such person or a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A in the case of any other person belongs to such person or a notice has been issued to the effect that any books of account or documents, seized or requisitioned under section 132 or section 132A in the case of any other person, pertain or pertains to, or any other information contained therein, relate to, such person, for the assessment year relevant to the previous year in which such search is initiated or survey is conducted or requisition is made and two assessment years preceding such assessment year.
It is also proposed that no updated return shall be furnished by any person for the relevant assessment year, where, an updated return has been furnished by him under the proposed sub-section (8A) for the relevant assessment year or any proceeding for assessment or reassessment or recomputation or revision of income under the Income-tax Act is pending or has been completed for the relevant assessment year in his case or the Assessing Officer has information in respect of such person for the relevant assessment year in his possession under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 or the Prohibition of Benami Property Transactions Act, 1988 or the Prevention of Money-laundering Act, 2002 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the same has been communicated to him, prior to the date of furnishing of return under this sub-section or information for the relevant assessment has been received under an agreement referred to in sections 90 or 90A of the Act in respect of such person and the same has been communicated to him, prior to the date of furnishing of return under this sub-section or any prosecution proceedings under the Chapter XXII have been initiated for the relevant assessment year in respect of such person, prior to the date of furnishing of return under this sub-section or he is such person or belongs to such class of persons, as may be notified by the Board in this regard.
It is also proposed to insert a clause in the Explanation to sub-section (9) of the said section to provide that a return furnished under the proposed sub-section (8A) of the said section unless such return is accompanied by the proof of payment of tax as required under section 140B.
These amendments will take effect from 1st April, 2022.
Provisions of Section 139(8A) related to the filing of Updated Returns
Section 139 of the Act is related to the provisions for filing of Income Tax Return by taxpayers.
Sub-section (1) of section 139 of the Act casts responsibility on the taxpayer to furnish a return within a definite time period or up to a particular date, that is, the due date which as per this section means:
(a) for an assessee who is a company or a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force, it is 31st day of October of the assessment year;
(b) for an assessee who is required to furnish a report under section 92E, it is 30th day of November of the assessment year; and
(c) for any other assessee, it is 31st day of July of the assessment year. Alternatively, sub-section (4) of section 139 of the Act facilitates filing of a belated return after the expiry of due date, if such return is furnished before 3 months prior to the end of the relevant assessment year or before the completion of assessment, whichever is earlier. Similarly, sub-section (5) of section 139 of the Act provides the taxpayer an opportunity to revise the return filed under sub-section (1) or sub-section (4) in case of any omission or wrong statement, after due date, which is to be filed 3 months before the end of the assessment year or before the completion of assessment, whichever is earlier. Hence, the object of section 139 of the Act is to give reasonable time to the taxpayer to file a correct statement of his income within the duration specified under the Act.
This provision provides an additional time of approximately 5 months to an individual assessee, 2 months to a company/auditable case and 1 month to an assessee who enters into an international transaction or specified domestic transaction respectively, in a financial year to file belated or revised return. This additional timeline for filing a revised/belated return may not be adequate when we factor in utilization of huge information and data available coupled with the “nudge approach” that motivates the taxpayer towards the desired objective of voluntary tax compliance, starting with filing of correct tax returns.
Hence, it is proposed to introduce a new provision in section 139 of the Act for filing an updated return of income by any person, whether he has filed a return previously for the relevant assessment year, or not. The proposal for updated return over a period longer than that is provided in the existing provisions of Income-tax Act would on the one hand bring use of huge data with the IT Department to a logical conclusion resulting in additional revenue realization and on the other hand, it will facilitate ease of compliance to the taxpayer in a litigation free environment.
Hence, it is proposed that the taxpayers may be given some more time under the Act to file particulars of their income for a previous year in an updated return. A payment of additional tax by persons opting to furnish their returns in the newly provided timelines is also required. It is proposed that an amount equal to twenty five percent or fifty percent as additional tax on the tax and interest due on the additional income furnished would be required to be paid. The following amendments to the Act are proposed for incorporating the above provisions: -
I) A new sub-section (8A) in section 139 is proposed to be introduced to provide for furnishing of updated return under the new provisions.
In section 139, –
(a) It is proposed to insert sub-section (8A) in section 139 of the Act to provide that:
(i) Any person, whether or not he has furnished a return under sub-section (1), sub-section (4) or sub-section (5), for an assessment year (herein referred to as the relevant assessment year), may furnish an updated return of his income or the income of any other person in respect of which he is assessable under the Act, for the previous year relevant to such assessment year, within twenty-four months from the end of the assessment year. Such return shall be furnished in the prescribed form and manner and shall contain prescribed particulars.
(ii) The proposed sub-section (8A) of section 139 shall not apply, if the updated return, is a return of a loss or has the effect of decreasing the total tax liability determined on the basis of return furnished under sub-section (1), sub-section (4) or sub-section (5) or results in refund or increases the refund due on the basis of return furnished under sub-section (1), sub-section (4) or sub-section (5), of such person under the Act for the relevant assessment year.
(iii) A person shall not be eligible to furnish an updated return under the proposed sub-section (8A) of section 139, if: –
(a) search has been initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of such person, or
(b) a survey has been conducted under section 133A, other than sub-section (2A) of that section, in the case such person, or
(c) a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A in the case of any other person belongs to such person, or
(d) a notice has been issued to the effect that any books of account or documents, seized or requisitioned under section 132 or section 132A in the case of any other person, pertain or pertains to, or any other information contained therein, relate to, such person.
This provision is for the assessment year relevant to the previous year in which such search is initiated or survey is conducted or requisition is made and two assessment years preceding such assessment year.
(iv) Also, no updated return shall be furnished by any person for the relevant assessment year, where,
(a) an updated return has been furnished by him under the proposed sub-section (8A) of section 139 of the Act for the relevant assessment year, or
(b) any proceeding for assessment or reassessment or recomputation or revision of income under the Act is pending or has been completed for the relevant assessment year in his case, or
(c) the Assessing Officer has information in respect of such person for the relevant assessment year in his possession under the Prevention of Money Laundering Act, 2002 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or the Prohibition of Benami Property Transactions Act, 1988 or The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 and the same has been communicated to him, prior to the date of his filing of return under the proposed sub-section (8A) of section 139 of the Act, or
(d) information for the relevant assessment has been received under an agreement referred to in sections 90 or 90A of the Act in respect of such person and the same has been communicated to him, prior to the date of his filing of return under the proposed sub-section (8A) of section 139 of the Act, or
(e) any prosecution proceedings under Chapter XXII have been initiated for the relevant assessment year in respect of such person, prior to the date of his filing of return under the proposed sub-section(8A) of section 139 of the Act, or
(f) he is a person or belongs to a class of persons, as may be notified by the Board in this regard.
b) It has also been proposed to amend sub-section (9) of section 139 to provide that a return filed under the proposed sub-section (8A) of the said section 139 shall be defective unless such return is accompanied by the proof of payment of tax as required under the proposed section 140B.
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