What is the story about?
The Finance Bill, 2026 has introduced targeted changes to the framework governing updated income-tax returns (ITR), particularly how they operate when a taxpayer faces reassessment proceedings under Section 148. While the updated return mechanism was originally pitched as a compliance-friendly window to correct past filings, the latest amendments indicate a shift toward tighter guardrails — especially once the tax department has initiated scrutiny.
What is an updated return?
Section 139(8A) allows taxpayers to file an “updated return” for past assessment years — typically within 24 months from the end of the relevant year — to correct omissions, disclose additional income, or rectify errors, subject to additional tax and interest.
The Finance Bill does not scrap this facility. Instead, it recalibrates how it works once a reassessment notice is issued.
Key change 1: Updated return formally allowed after a Section 148 notice
The Bill amends Section 139 to explicitly state that a taxpayer may file an updated return in response to a notice under Section 148 (reassessment) — but only within the time limit specified in that notice.
However, there is a catch:
Once the taxpayer chooses to file an updated return under this route, they cannot file a return in any other manner in response to that same notice. In effect, the updated return becomes the sole compliance option for that reassessment window.
Why this matters:
Earlier, there was interpretational ambiguity on whether updated returns could be used once reassessment had begun. The amendment removes that uncertainty but also restricts parallel filings.
Key change 2: New 10% penalty-like levy for reassessment cases
Perhaps the most significant deterrent comes via an amendment to Section 140B.
If a taxpayer files an updated return pursuant to a Section 148 notice, the Bill imposes an additional 10% charge on top of:
This extra levy applies from 1 March 2026 (deemed date).
What this means:
Correcting past income after the department has issued a notice will now be costlier than voluntarily updating earlier.
Key change 3: Limited relief where losses are involved
The Bill also tweaks the provisos to Section 139(8A) dealing with cases where an updated return affects losses.
While the law still restricts certain loss-related revisions, the amendment narrows some earlier blanket prohibitions, allowing more nuanced outcomes in reassessment-linked cases rather than an automatic bar.
This does not create a free pass to revise losses; it simply clarifies exceptions rather than tightening the regime.
What is an updated return?
Section 139(8A) allows taxpayers to file an “updated return” for past assessment years — typically within 24 months from the end of the relevant year — to correct omissions, disclose additional income, or rectify errors, subject to additional tax and interest.
The Finance Bill does not scrap this facility. Instead, it recalibrates how it works once a reassessment notice is issued.
Key change 1: Updated return formally allowed after a Section 148 notice
The Bill amends Section 139 to explicitly state that a taxpayer may file an updated return in response to a notice under Section 148 (reassessment) — but only within the time limit specified in that notice.
However, there is a catch:
Once the taxpayer chooses to file an updated return under this route, they cannot file a return in any other manner in response to that same notice. In effect, the updated return becomes the sole compliance option for that reassessment window.
Why this matters:
Earlier, there was interpretational ambiguity on whether updated returns could be used once reassessment had begun. The amendment removes that uncertainty but also restricts parallel filings.
Key change 2: New 10% penalty-like levy for reassessment cases
Perhaps the most significant deterrent comes via an amendment to Section 140B.
If a taxpayer files an updated return pursuant to a Section 148 notice, the Bill imposes an additional 10% charge on top of:
- the tax payable on the newly disclosed income, and
- the interest already leviable under existing law.
This extra levy applies from 1 March 2026 (deemed date).
What this means:
Correcting past income after the department has issued a notice will now be costlier than voluntarily updating earlier.
Key change 3: Limited relief where losses are involved
The Bill also tweaks the provisos to Section 139(8A) dealing with cases where an updated return affects losses.
While the law still restricts certain loss-related revisions, the amendment narrows some earlier blanket prohibitions, allowing more nuanced outcomes in reassessment-linked cases rather than an automatic bar.
This does not create a free pass to revise losses; it simply clarifies exceptions rather than tightening the regime.
