The Finance Act, 2025 has brought about a pivotal amendment to the Income-tax framework by extending the time limit for filing Updated Returns (ITR-U) from 24 months to 48 months from the end of the relevant Assessment Year. This expansion marks a major legislative shift towards enabling voluntary tax disclosures, reducing litigation, and promoting tax certainty.
A notification on the Income Tax e-filing portal confirms:
“Facility for filing updated returns for the AYs 2021–22 and 2022–23 as per Finance Act, 2025 will be provided shortly.”
This article provides a legal and practical analysis of the amendment, its rationale, impact, and the compliance roadmap for taxpayers.
Section 139(8A) – Updated Return
Introduced via Finance Act, 2022, section 139(8A) of the Income-tax Act, 1961 empowers any taxpayer — whether return-filer or not — to furnish an Updated Return (ITR-U) within a prescribed time limit if they discover any error, omission, or income that was not previously reported.
Pre-Amendment Rule (up to AY 2024–25):
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Time limit: Up to 24 months from the end of the relevant AY.
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Additional tax: 25% or 50% on tax + interest depending on delay.
Post-Amendment Rule (from AY 2025–26 onwards):
As per the amended Section 139(8A), read with clause (iv) of the proviso introduced by Finance Act 2025:
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The ITR-U may now be filed within 48 months from the end of the relevant AY.
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Additional tax slabs have been expanded to include higher rates for extended delays.
Revised Time Limits & Additional Tax
| Time from End of AY | Permissibility | Additional Tax | Legal Status |
|---|---|---|---|
| 0–12 months | Allowed | 25% | Section 139(8A)(a) |
| 12–24 months | Allowed | 50% | Section 139(8A)(b) |
| 24–36 months | - Newly Allowed | 60% | Finance Act, 2025 |
| 36–48 months | - Newly Allowed | 70% | Finance Act, 2025 |
Note: Additional tax is levied on the aggregate of tax and interest payable on the additional income disclosed.
Application of Additional Tax
Consider a taxpayer identifying unreported income for AY 2021–22, where tax plus interest payable totals ₹1,00,000.
| Filing Timeline | Total Liability (with Additional Tax) |
|---|---|
| Within 12 months | ₹1,25,000 (25% of ₹1,00,000) |
| 12–24 months | ₹1,50,000 (50%) |
| 24–36 months | ₹1,60,000 (60%) |
| 36–48 months | ₹1,70,000 (70%) |
Important Exclusion - Section 148A Proceedings
To prevent misuse, Section 139(8A) includes a caveat — if a taxpayer has been served a notice under Section 148A (pertaining to reassessment), the ability to file ITR-U beyond 36 months is prohibited.
However, an important exception applies:
If an order under Section 148A(3) explicitly states that reassessment under Section 148 is not warranted, the taxpayer may still file an ITR-U up to 48 months.
Effective Date and Transitional Relief
These amendments are prospectively effective from 1st April 2025 and shall apply to ITR-U filings for:
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Assessment Year 2021–22
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Assessment Year 2022–23, and onwards.
The Income Tax portal will shortly enable functionalities to facilitate such updated return filings as per the extended time window.
Government’s Shift Toward Compliance-Driven Ecosystem
This legislative development aligns with the government’s intent to:
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Encourage self-disclosure and rectification of defaults,
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Improve revenue mobilization without coercive measures, and
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Reduce long-drawn litigation by providing a structured pathway for compliance.
By allowing an extended compliance window, the government is clearly incentivizing transparency, while balancing it with deterrence through higher additional taxes for delayed disclosures.
Strategic Considerations for Taxpayers & Advisors
File proactively: Don’t wait for scrutiny. The earlier you file, the lower the additional tax burden.
Assess eligibility carefully: Ensure there are no ongoing Section 148A proceedings that may restrict eligibility.
Document disclosures: Maintain robust documentation to justify the accuracy of additional income declared.
Evaluate impact on GST & TDS: Ensure updated income reported is reconciled with indirect tax and withholding tax positions, if applicable.
Conclusion
The extension of the ITR-U time limit from 24 to 48 months under the Finance Act, 2025 is a progressive compliance measure that opens a second window for taxpayers to voluntarily regularize past defaults. While this is a welcome relief, taxpayers must exercise diligence and timeliness, as delayed disclosures will attract steep additional tax costs.
Taxpayers and professionals must now view ITR-U not merely as a remedial tool, but as a strategic lever for mitigating risk and ensuring compliance in a rapidly digitizing tax administration regime.