Understanding Concept of “Updated Return” introduced by Finance Bill 2022

The Finance Bill for 2022 includes a new set of return concepts known as “Updated Return.”

There have been three versions so far: Original Return, Revised Return, and Bleated Return, all of which will be maintained. There is now a new return idea known as “Updated Return.” The Finance Bill -2021 proposes to add a new sub-section (8A) to section 139 to provide for the filing of amended returns under the new provisions.

Let us know about it:

1. The provisions for filing an Income Tax Return by taxpayers are covered by Section 139 of the Act.

2. Subsection (1) of Section 139 of the Act imposes on the taxpayer the need to file a return within a certain time period or by a specific day, i.e., the due date, which is defined as follows:

(a) The 31st day of October of the assessment year for an assessee who is a company or a person (other than a business) whose accounts are required to be audited under this Act or any other law now in force;

(b) the 30th day of November of the assessment year for an assessee who is required to file a report under section 92E; and

(c) it is the 31st day of July of the assessment year for any other assesses.

Alternatively, if a belated return is filed before the end of the relevant assessment year or before the conclusion of assessment, whichever comes first, sub-section (4) of section 139 of the Act makes it easier to file a late return after the due deadline has passed. Similarly, sub-section (5) of section 139 of the Act allows a taxpayer to revise a return filed under sub-section (1) or sub-section (4) after the due date, which is 3 months before the end of the assessment year or before the completion of assessment, whichever is earlier, if there is an omission or incorrect statement. As a result, the purpose of section 139 of the Act is to enable the taxpayer a reasonable amount of time to file a proper statement of income within the time limits set forth in the Act.

3. This provision gives an individual assessee, a company/auditable case, and an assessee who engages in an overseas transaction or a defined domestic transaction in a financial year an additional 5 months, 2 months, and 1 month to file a belated or revised return, respectively. When we consider the use of the vast amount of information and data available, as well as the “nudge approach” that motivates the taxpayer toward the desired goal of voluntary tax compliance, beginning with the filing of correct tax returns, this additional timeline for filing a revised/belated return may not be sufficient.

4. As a result, it is proposed that section 139 of the Act be amended to allow any person, whether or not he has previously made a return for the relevant assessment year, to make an updated report of income. The proposal for an updated return for a period longer than that provided in the existing provisions of the Income-tax Act would, on the one hand, bring the use of massive data with the IT Department to a logical conclusion, resulting in additional revenue realisation, and, on the other hand, make it easier for the taxpayer to comply in a litigation-free environment.

5. As a result, it is proposed that taxpayers be allowed additional time under the Act to provide details of their previous year’s income in an updated return. Individuals who choose to file their returns within the newly established deadlines must additionally pay an extra tax. It is proposed that an additional tax of twenty-five percent or fifty percent be paid on the tax and interest due on the additional income given. To incorporate the foregoing provisions, the following adjustments to the Act are proposed: –

I. It is recommended that a new subsection (8A) of section 139 be added to accommodate for the filing of amended returns under the new requirements.

in section 139, ––

(a) In section 139 of the Act, it is proposed to add sub-section (8A) to provide that:

(i) Within twenty-four months after the end of an assessment year (herein referred to as the relevant assessment year), any person, whether or not he has furnished a return under sub-section (1), sub-section (4), or sub-section (5), 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. Such a return must be submitted in the prescribed format and contain the prescribed information.

(ii) If the updated return is a loss return or has the effect of reducing 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, the proposed sub-section (8A) of section 139 shall not apply.

(iii) Under the proposed sub-section (8A) of section 139, a person is not eligible to file an updated return if: ––

(a) In the instance of such a person, a search has been commenced under section 132, or books of account, other documents, or any assets have been requisitioned under section 132A, or

(b) In the case of such a person, or in the case of such a person, a survey has been conducted under section 133A, other than sub-section (2A) of that section.

(c) a notification stating that any money, bullion, jewellery, other precious commodity or thing seized or requisitioned under section 132 or section 132A in the case of any other person belongs to that person, or

(d) Any books of account or papers seized or requisitioned under section 132 or section 132A in the case of any other person pertain or pertain to, or any other information included therein, relate to such person, according to a notice.

This clause applies to the assessment year preceding the year in which the search, survey, or request is begun, as well as the two assessment years preceding such assessment year.

(iv) Furthermore, no amended return shall be submitted by any individual for the relevant assessment year, unless the following conditions are met:

(a) He has either submitted a revised return for the relevant assessment year under the proposed sub-section (8A) of section 139 of the Act, or

(b) He has filed an updated return for the relevant assessment year under the proposed sub-section (8A) of section 139 of the Act, 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 maybe notified by the Board in this regard.

g) It has also been proposed to amend sub-section (9) of section 139 to providethat 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

II) A new section 140B has been proposed to provide for the tax required to be paid for opting to file a return under the proposed provisions i.e. sub-section (8A) of section 139 of the Act.

I. Where there has been no previous return: where there has been no previous return of income under sub-section

(1) or sub-section (4) of section 139 has been furnished by an assessee, he shall be liable to pay the tax due, together with interest and fee payable under any provision of the Act for any delay in furnishing the return or any default or delay in payment of advance tax, along with the payment of additional tax, before furnishing the return under sub-section (8A) of section 139. The tax due must be calculated after taking into account the following factors:

(i) the amount of tax, if any, already paid as advance tax;

(ii) any tax deducted or collected at source;

(iii) any relief of tax claimed under section 89;

(iv) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;

(v) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and

(vi) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD.

Proof of payment of the tax, additional tax, interest, and charge must also be included with the revised return.

II. Where an assessee has filed a return of income under sub-section (1), sub-section (4), or sub-section (5) of section 139 (referred to as earlier return), he shall be liable to pay the tax due, together with any interest and fee payable under any provision of this Act for any delay in filing the return or any default or delay in paying advance tax, before filing the return under sub-section (8A) of section 139. The tax due must be calculated after taking into account the following factors:

(i) the amount of relief or tax referred to in section 140A, sub-section (1), for which a credit was taken in the previous return;

(ii) tax deducted or collected at source in accordance with Chapter XVII-B on any income that is subject to such deduction or collection, is taken into account in computing total income, and was not claimed in the previous return;

(iii) any tax relief or deduction claimed under section 90 or section 91 on account of tax paid on such income in a country outside India that was not claimed in the previous return;

(iv) any tax relief claimed under section 90A on account of tax paid on such income in any specified region outside India referred to in that section that was not claimed in the previous return;

(v) any tax credit claimed, which has not been claimed in the previous return and must be set off in accordance with the provisions of section 115JAA or section 115JD.

The aforementioned tax will be enhanced by the amount of any refund issued in connection with such earlier return, if any.

Proof of payment of such tax, additional tax, interest, and fee shall be attached to the revised return filed under section 139 sub-section (8A).

III) If the return is furnished after the time allowed under sub-section (4) or (5) of section 139 has expired and before the end of the relevant assessment year, the additional tax payable at the time of furnishing the return under sub-section (8A) of section 139 shall be equal to twenty-five percent of the aggregate of tax and interest payable, as determined in sub-paragraphs I or II above. However, if such return is filed after the end of the twelve-month period but before the end of the twenty-four-month period following the end of the relevant assessment year, the additional tax payable will be fifty percent of the total tax and interest payable, as determined in sub-paragraphs I or II above.

It is also clarified that for the purposes of computation of “additional income-tax”, tax shall include surcharge and cess, by whatever name called, on such tax.

IV) It is further provided that notwithstanding anything contained in the Explanation 1 to section 234B, in the cases where an earlier return has been furnished, interest payable under section 234B shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax, where, “assessed tax” means the tax on the total income as declared in the return to be furnished under sub-section (8A) of section 139, after taking into account the following:

(i) the amount of relief or tax, referred to in sub-section (1) of section 140A, the credit for which has been taken in the earlier return;

(ii) tax deducted or collected at source, in accordance with the provisions of Chapter XVII-B, on any income which is subject to such deduction or collection and which is taken into account in computing such total income and which has not been claimed in the earlier return;

(iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India on such income which has not been claimed in the earlier return;

(iv) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section on such income which has not been claimed in the earlier return;

(v) any tax credit claimed, to be set off in accordance with the provisions of section 115JAA or section 115JD, which has not been claimed in the earlier return. The aforesaid tax shall be increased by the amount of refund, if any, issued in respect of such earlier return.

139. In the absence of an earlier return, the interest payable under section 234A is computed on the amount of the tax on the total income as disclosed in the return under section 139 sub-section (8A). Furthermore, where an earlier return has not been filed, interest payable under section 234C shall be computed after taking into account the income reported in the return under sub-section (8A) of section 139 as the returned income. Simultaneously, for the purposes of calculating the additional tax, the interest payable shall be interest chargeable under any provision of the Income-tax Act on the income as reported in the return filed under sub-section (8A) of section 139, as reduced by any interest paid in the previous return, if any. If no previous return has been filed, however, the interest paid on that return will be regarded nil.

VI. In view of the proposed sub-section (8A) of section 139 and new section 140B, consequential amendments in section 144, section 153, section 234A and section 234B and 276CC have also been made.

These changes will go into effect on April 1, 2022.