Budget 2026 – Understanding Updated Return Changes

Budget 2026, which introduces the comprehensive Income-tax Act, 2025, has significantly refined the rules for Updated Returns (ITR-U). These changes are aimed at encouraging voluntary compliance, reducing protracted litigation, and providing a “final chance” for taxpayers to regularize their records.

The most groundbreaking change is the new flexibility provided to taxpayers who are already under scrutiny or reassessment.

1. Major Reform: Updating Returns During Reassessment

Previously, taxpayers were barred from filing an updated return once reassessment proceedings had been initiated. Budget 2026 has removed this restriction to streamline dispute resolution.

• New Opportunity: Taxpayers are now permitted to update their returns even after reassessment proceedings have begun.
• Additional Tax Cost: To avail of this, taxpayers must pay an additional 10% tax over and above the tax and interest applicable for that year.
• Streamlined Assessment: Once an updated return is filed in such cases, the Assessing Officer is required to base the reassessment only on the newly updated return, rather than original disputed figures.

2. Integration with Revised Return Timelines

Budget 2026 also rationalized the relationship between Revised and Updated returns by extending the window for the former.

• Extended Revision Window: The deadline for filing a Revised Return (to correct errors without the heavy penalties of an Updated Return) has been extended from December 31 to March 31 of the assessment year, subject to a nominal fee.
• Updated Return as a Safety Net: If a taxpayer misses even this extended March 31 revision deadline, they can still utilize the ITR-U (Updated Return) provision for up to 48 months from the end of the relevant assessment year.

3. Immunity from Penalty and Prosecution

To foster a trust-based tax environment, the Budget offers a clear “exit route” for those who have misreported income.

• Full Immunity: Immunity from penalty and prosecution is proposed if a taxpayer voluntarily updates their return and pays 100% of the tax due as additional income-tax.
• Minor Foreign Assets: Retrospective immunity (effective from Oct 1, 2024) is also proposed for non-disclosure of non-immovable foreign assets if their aggregate value is less than ₹20 lakhs.

4. Key Restrictions: When ITR-U is Not Allowed

While the window has been expanded, certain strict conditions remain to prevent misuse of the ITR-U facility:

• No “Loss” Returns: An updated return cannot be used to file a return of loss or to increase a previously claimed loss.
• No Refund Increase: It cannot be filed if it results in a higher refund or reduces the total tax liability determined in an earlier return.
• Search and Seizure: Taxpayers who have undergone search or seizure operations for that specific year are generally ineligible to file an ITR-U.

Summary of Filing Options Under Budget 2026

CA Ankit Gulgulia (Jain)

FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)

Practising Chartered Accountant in Delhi NCR Since 2011. He can be contacted at ankitgulgulia@gmail.com or +91-9811653975.