Correcting past income-tax mistakes has become significantly more expensive after Budget 2026. Under changes proposed in the Finance Bill, 2026, taxpayers
filing an Updated Income Tax Return (ITR-U) may now face additional tax of up to 70%—and in some cases 80%—on undisclosed income, depending on how late the correction is made. While the government has extended the window for filing updated returns to four years, the sharply rising penalty structure makes clear that delays in voluntary disclosure will carry a steep price.
What is an Updated Return (ITR-U)?
An updated return allows taxpayers to voluntarily disclose income that was earlier missed or incorrectly reported—even if no original, revised, or belated return was filed—subject to conditions under the Income-tax Act, 2025.
Who Can File and By When?
Any taxpayer can file an updated return within 48 months from the end of the financial year following the relevant assessment year. Certain exclusions apply, especially where proceedings are already underway.
How Much Extra Tax Will You Pay?
In addition to regular tax and interest, an additional tax applies based on the delay:
- 25% if filed within 12 months
- 50% if filed between 12–24 months
- 60% if filed between 24–36 months
- 70% if filed between 36–48 months
Higher Cost If Filed After Reassessment Notice
If an updated return is filed after a reassessment notice, an extra 10% is added to the above rates:
- 35% (within 12 months)
- 60% (12–24 months)
- 70% (24–36 months)
- 80% (36–48 months)
While penalties for under-reporting won’t apply to income disclosed via such an updated return, reassessment proceedings will continue.
What About Loss Returns?
Currently, an updated return cannot be used to report or increase a loss. However, Budget 2026 proposes allowing updated returns that reduce previously claimed losses, once the Finance Act is enacted.
No Filing Fee—but a Strong Deterrent
There’s no separate fee for filing an updated return. Still, the graded penalty structure is designed to discourage procrastination and push taxpayers toward timely, voluntary compliance.
Bottom line: Budget 2026 widens the opportunity to come clean—but makes it far more expensive to wait.
