Simplified Laws Guide to Taxation and Legal Concern The Union Budget 2025 has introduced a key change in the Updated Income Tax Return (ITR-U) mechanism by extending the filing period by two more years. This change provides a longer window for taxpayers who missed filing or underreported their income. But before understanding its impact, let’s briefly revisit the existing return filing process.
Understanding the Return Filing Process
The Income Tax Act prescribes deadlines for taxpayers to file their returns.
The original due date for individuals for FY 2024-25 (ending March 2025) is July 31, 2025, this is when taxpayers are expected to declare all their income and file their return on time.
However, errors and omissions do occur, and for that, taxpayers get the option to file to revise the Return under Sec 139(5). If someone realizes a mistake after filing, they can revise their return by December 31, 2025.
Belated Return (Sec 139(4)): If someone misses the original due date, they can still file a return until December 31, 2025, but with restrictions. Two key restrictions are that losses (except house property loss) cannot be carried forward, can’t opt for old tax regime if the return is belated. Also, a late fee of up to ₹5,000 applies.
But what if someone still misses the belated return deadline? That’s where Updated Return (ITR-U) comes in.
What is an Updated Return?
An Updated Return (Sec 139(8A)) allows taxpayers to declare omitted income even after the belated return deadline.
Under the previous rules (valid till March 2025), an updated return could be filed within two years from the end of the relevant assessment year. For example, if taxpayers wanted to file an updated return in February 2025, they could only file for FY 2021-22 and FY 2022-23.
However, updated returns come with restrictions such as No refunds, no loss adjustments, and no reduction of taxable income are allowed. Most importantly, additional tax is payable on undeclared income.
The tax payable includes regular tax + interest under Sec 234A, 234B, and 234C. An additional tax of up to 50% on tax + interest
What if taxpayers who genuinely missed reporting certain income beyond 2 years? To address this, the Budget 2025 extends the updated return filing period by two more years. This means that from April 2025 onwards, taxpayers can file an updated return for FY 2020-21, in addition to the last two years. However, the cost of delay increases significantly (see the table)
Updated Return Filing in FY 2025-26
| Financial Year for which the return is filed | Additional Tax |
| FY 2020-21 | 70% of tax + interest |
| FY 2021-22 | 60% of tax + interest |
| FY 2022-23 | 50% of tax + interest |
| FY 2023-24 | 25% of tax + interest |
While the updated return provision is a useful compliance tool, it comes at a steep financial cost. The best approach remains filing the original return on time and ensuring all income is correctly declared. Timely compliance avoids unnecessary penalties and tax burdens and helps taxpayers stay at peace.
