After Budget 2026, correcting past income tax mistakes has become significantly more expensive. Under the updated return (ITR-U) framework introduced through the Finance Bill, 2026, taxpayers may have to pay up to 70% additional tax—and in some cases 80%—on undisclosed income, depending on how late the correction is made. While the government has expanded the window to file updated returns up to four years, the rising tax cost sends a clear signal: delays in voluntary disclosure will now come at a steep price.
Updated income tax return rules after Budget 2026: What taxpayers need to know
After the presentation of Union Budget 2026, the government, through the Finance Bill, 2026, has clarified the provisions relating to the filing of Updated Income Tax Returns (ITR-U) under the Income-tax Act, 2025. The Income Tax Department has released a set of FAQs explaining the scope, timelines and additional tax payable in such cases.
Below are the key provisions explained, based strictly on the official FAQs issued after Budget 2026.
What is an “Updated Return” under the Income-tax Act, 2025
Section 263(6) of the Income-tax Act, 2025 provides for furnishing of an updated return of income. An updated return is a return that may be furnished by a person, whether or not an original, revised, or belated return has been earlier furnished, to voluntarily disclose any income that was not reported or was inaccurately reported before, as long as certain conditions specified in the Income-tax Act, 2025 are met.
Who can file an updated return and within what time limit
Any person may furnish an updated return of income or income of any other person for whom he is assessable, within forty-eight months from the end of the financial year succeeding the relevant tax year, as provided under section 263(6)(a) of the Income-tax Act, 2025. Such return may be furnished even if no original, belated or revised return was filed earlier, subject to the exclusions specified in section 263 of the Income-tax Act, 2025.
Additional tax payable while filing an updated return
In addition to tax and interest payable under the Act, an assessee furnishing an updated return is required to pay additional income-tax on additional income disclosed in the updated ITR when compared with the corresponding income in original, revised or belated ITR at the following rates:
25% of aggregate tax and interest, if the updated return is furnished after the due date of filing the revised ITR and within 12 months of the end of the financial year following the corresponding tax year;
50%, if furnished after 12 months but before 24 months of the period indicated above;
60%, if furnished after 24 months but before 36 months of the period indicated above;
70%, if furnished after 36 months but before 48 months of the period indicated above.
Updated return in cases involving loss
Section 263(6)(b) of the Income-tax Act, 2025 provides that taxpayers may file the updated return in such cases where original return filed under section 263(1) of the Income-tax Act, 2025 shows a loss, and updated return being filed thereafter, shows income. However, section 263(6)(c)(i) of the Income-tax Act, 2025 restricts filing of updated return when the updated return is a return of loss for the said tax year. Therefore, presently the updated ITR cannot be filed if the earlier ITR is a return of loss and the loss is proposed to be reduced through filing of updated ITR.
Proposed expansion under Finance Bill, 2026
An amendment is proposed in Section 263 of the Income-tax Act, 2025 to allow taxpayers to file an updated return in cases where they reduce the amount of loss compared to the loss claimed in the original return filed by the specified due date.
Updated return after reassessment notice and higher tax outgo
Section 263(6)(c)(v) of the Income-tax Act, 2025 prohibits filing of an updated return in cases where any proceedings for assessment, reassessment, recomputation, or revision of income are pending or have been completed for the tax year in question.
In this regard, amendment is proposed so as to allow filing of an updated return also in such cases where reassessment proceedings have been initiated for the relevant tax year in pursuance of a notice issued under section 280 of the Income-tax Act, 2025. Such updated return is required to be filed within such period as specified in the said notice. Consequent to filing such return, no penalty shall be imposed in respect of income reported in such updated ITR.
Where an updated return is filed in pursuance of a notice issued under section 280, the additional income-tax payable shall be increased by a further sum of 10% of the aggregate of tax and interest, making the total additional income-tax payable:
35% (25% + 10%) if furnished within 12 months;
60% (50% + 10%) if furnished after 12 months but before 24 months;
70% (60% + 10%) if furnished after 24 months but before 36 months;
80% (70% + 10%) if furnished after 36 months but before 48 months.
Whether reassessment proceedings will stop after filing updated return
Reassessment proceedings will not be abated upon filing of updated return. However, no penalty of under-reporting or misreporting of income will be imposed on income disclosed in the updated return filed in response to notice issued under section 280 of the Income-tax Act, 2025.
When the expanded scope will apply
The updated return in cases of reduction of loss and in response to reassessment notice under section 280 may be filed after the enactment of the Finance Act, 2026.
No fee for filing updated return
There is no fee prescribed for filing of updated return. Thus, no additional fee is required to be paid for filing of updated return in the case of expanded scope.
Why this matters after Budget 2026
The post-Budget 2026 clarifications under the Finance Bill, 2026 show that while the government has widened the scope for voluntary disclosure through updated returns, it has also introduced a graded additional tax structure to discourage delayed compliance.
aniltikotekar4sme.com 