The Future of ITR Filing: Changes to Belated Returns and Assessee Rectification

The Finance Act 2021 set a new time limit for filing revised or belated returns, bringing it in line with the three months before the end of the relevant assessment year. Subsequently, the Finance Act 2022 introduced Section 139(8A), allowing an assessee to file a return for the first time or revise a previously filed normal, loss, belated, or revised return within 24 months from the end of the relevant assessment year. This, however, requires the payment of an additional tax of 25% or 50% of the actual tax payable, along with interest in Form ITR – U, based on the duration after the end of the assessment year.

Section 139(8A) does not permit the revision of a return, and it is only intended for enhancing income or reducing loss, excluding the reduction of income or increase of loss. This provision serves as a means to boost tax revenues, nudging the department to uncover any income omissions or non-disclosures. It’s important to note that carrying forward losses by filing the first return under Section 139(8A) is not possible. However, revising normal, loss, or revised returns via Section 139(8A) is allowed if the carry forward of losses would normally be possible, subject to the changes made in Section 139(8A).

With aligned due dates for revised and belated returns under Sections 139(4) and (5), taxpayers have a much narrower window for making corrections. For certain corporate and transfer pricing assessees, this window could be as short as 30 to 60 days. As a result, taxpayers are urged to exercise great caution when filing their returns.

Moving forward, an assessee who files a return before the due date will have two opportunities to correct their return: first through a revised return, which can reflect upward or downward income compared to the original return, and then solely through an upward revision of income via Section 139(8A).

As for belated returns filed under Section 139(8A), the return revision route will be available only once, and it is limited to an upward revision. Consequently, the concept of belated returns might become obsolete due to the introduction of Section 139(8A). For the assessment year 2023-24, the timeline for filing a revised or belated return is restricted to December 31, 2023. Thereafter, only the provisions of Section 139(8A) will apply, requiring an assessee to pay 25% or 50% additional tax for errors or delays, even if they are genuine. This necessitates taxpayers to plan their compliance timelines accordingly.

Regarding rectification, self-initiated rectification is only possible for “mistakes apparent on record,” within four years from the end of the relevant financial year. However, the option for self-initiated rectification under Section 154(2)(b) is subject to the assessee writing to the Assessing Officer to justify or invoke it. The e-filing portal does not currently offer this option for changes in income, even for genuine reasons. The reduced timelines for revised or belated returns, the mandatory use of Section 139(8A), and the limitation of self-initiated rectification to a one-way traffic system strip the assessee of the principle of audi alteram partem (the right to be heard). As a result, belated return filing and rectification by the assessee may soon become historical practices found only in textbooks.

These amendments, coupled with the Department’s Annual Information Statement (AIS) and E-campaign, will undoubtedly present challenges for all taxpayers. The tax department has recently prompted filers for the assessment years 2021-22, 2022-23, and 2023-24 to verify their return data with AIS and correct any discrepancies by filing returns under Section 139(8A), where necessary. It’s important to bear in mind that the 24-month window for Section 139(8A) for the assessment year 2021-22 will expire on March 31, 2024. Subsequently, for the following years, this will come at a higher cost of 25% or 50% extra tax plus interest.

Srivatsan Ranganathan, Chartered Accountant