That window has now closed. But what if an error still remains uncorrected, or a disclosure was missed altogether?
In such cases, the only remaining route is filing an updated return—commonly known as ITR-U. It offers taxpayers a second chance to disclose missed income, though with important limitations and financial consequences.
What ITR-U allows
An updated return can be filed within four years from the end of the relevant assessment year to report income that was not disclosed earlier. This is subject to the payment of additional tax, interest and penalty.
For instance, a taxpayer who forgot to report bank savings interest income for FY25 can still correct the omission within this extended window, provided the prescribed conditions are met. However, ITR-U is not intended to function as a general correction tool for all errors.
“An updated return can be filed only to declare income that was not offered to tax earlier. It cannot be used to reduce tax liability, claim refunds or even keep tax payable unchanged. In effect, an updated return is permitted only when the final outcome is a higher tax payment,” said Vijaykumar Puri, partner at VPRP & Co LLP, Chartered Accountants.
Who can file
An updated return may be filed by a taxpayer who has already submitted an ITR—whether it was the original return, a belated return filed after the due date, or even a revised return—but later discovers that income details were missed or reported incorrectly.
The provision also extends to those who did not file an ITR at all, having missed both the original and belated filing deadlines. In essence, the law allows taxpayers to revisit past filings if they uncover inaccuracies or omissions that result in additional tax liability.
Permitted corrections
ITR-U can be used in cases such as under-reporting or incorrect reporting of income, selecting the wrong head of income, or applying an incorrect tax rate.
However, it cannot be used to claim missed deductions or exemptions, disclose mandatory schedules such as Schedule Foreign Assets (FA) or Schedule Assets and Liabilities (AL), add donations, correct losses, or make any change that reduces tax liability or leads to a refund.
Even if the correction does not change the tax payable, the updated return route remains unavailable.
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Consider a taxpayer who failed to report capital gains and now wants to disclose them through an updated return, but also has carried-forward or current-year losses that could be set off against those gains.
In such cases, eligibility depends on the net tax impact, said Bhawna Kakkar, chartered accountant and founder, Kakkar & Company, Chartered Accountants.
“If, after adjusting the losses, there is still additional taxable income and incremental tax payable, an updated return can be filed. But if the set-off of losses completely absorbs the additional capital gains and the tax payable remains unchanged, or reduces, the updated return will not be allowed,” she explained.
No shortcuts allowed
Taxpayers who received notices from the tax department in December but missed the revision deadline should not use ITR-U if there is no additional income to report.
“Since the statutory trigger for a valid ITR-U is incremental tax, if the correction improves accuracy but does not enhance revenue, the route is legally blocked,” Kakkar said.
Puri noted that some taxpayers attempt workarounds by declaring small amounts of artificial income in order to use ITR-U to fix past disclosure failures.
“For example, if they had not reported foreign assets in previous ITRs, which could attract a penalty of up to ₹10 lakh under the Black Money Act, they might declare a nominal interest income of, say, ₹1,000 in ITR-U to open the opportunity to disclose the foreign assets. The tax and penalty on this small amount is minimal, allowing them to file an updated return while avoiding the risk of the much larger penalty later on a non-disclosure,” he said.
However, he strongly advises against this approach.
“Artificially creating income to fix disclosures defeats the purpose of the updated return mechanism. Paying additional tax does not validate incorrect or misleading statements. Using one incorrect declaration to fix another only compounds the problem.”
The cost of compliance
Voluntary compliance through an updated return comes at a price—and that price increases with time. Taxpayers must pay additional tax, interest on the tax, and a penalty calculated on the additional tax plus interest.
“The interest is levied under Section 234B at 1% simple interest per month from 1 April of the assessment year till the month the updated return is filed,” said Kakkar.
If the updated return is filed within one year, the penalty is 25% of the additional tax. This rises to 50% if filed within two years, 60% within three years, and 70% if filed within four years.
For example, if a taxpayer missed reporting interest income in FY25 resulting in an additional tax liability of ₹20,000 and interest of ₹2,000, the base amount for penalty calculation would be ₹22,000. If the ITR-U is filed before March 31, 2026, a penalty of 25%, or ₹5,500, would apply—taking the total payout to ₹27,500.
Voluntary vs scrutiny
While Budget 2025 extended the window for filing updated returns from two years to four, it introduced a trade-off. Voluntary filing in the third and fourth year can attract penalties of up to 60% and 70% respectively.
By comparison, if a case is selected for scrutiny, the penalty for under-reporting is 50% of the tax due—calculated only on tax, not tax plus interest. In some scenarios, this makes voluntary disclosure appear more expensive than being caught later.
Experts caution against reading too much into this apparent arbitrage.
The 50% penalty applies only to under-reporting, while misreporting attracts a much steeper penalty of 200% of the additional tax. “In practice, most cases are treated as misreporting rather than under-reporting. This is because even though Section 270A(9) lists several situations that qualify as misreporting, the wording of the law is such that it does not clearly define the difference between misreporting and underreporting,” said Puri.
As a result, tax officers often classify cases as misreporting to levy higher penalties. For instance, missing one out of four bank savings accounts may appear to be under-reporting to a taxpayer, but the department could interpret it as deliberate misreporting.
Given these risks, experts advise taxpayers to disclose any missed income through ITR-U rather than gamble on scrutiny outcomes.
31 March 2026, is the deadline to file an updated return for FY2020–21. Taxpayers should carefully evaluate eligibility and use ITR-U as a genuine second chance to disclose missed income—especially foreign income, where penalties can run as high as ₹10 lakh.
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