After the Union Budget 2026, the government has cleared the air on how Updated Income Tax Returns (ITR-U) will work under the Income-tax Act, 2025.
Through the Finance Bill, 2026, and a fresh set of FAQs, the Income Tax Department has explained who can file an updated return, the deadlines, and the extra tax involved.
Here is a simple and easy explanation of the key points that taxpayers should know.
What Is an Updated Income Tax Return (ITR-U)
An updated return allows taxpayers to voluntarily correct mistakes in their income tax filing.
This applies even if no return was filed earlier or if income was under-reported.
Under Section 263(6) of the Income-tax Act, 2025, a person can file an updated return to disclose income that was missed or reported incorrectly earlier, as long as the legal conditions are met.
Who Can File ITR-U and the Time Limit
Any taxpayer can file an updated return for themselves or for someone they are assessable for.
The time limit is 48 months from the end of the financial year following the relevant tax year.
This means taxpayers get up to four years to correct their return.
Even if no original, revised, or belated return was filed earlier, an updated return can still be filed, subject to certain exclusions.
Extra Tax Payable on Updated Returns
Filing an updated return comes with an additional tax cost, over and above normal tax and interest. The longer you delay, the higher the extra tax.
Here is how it works:
25% additional tax if filed within 12 months
50% if filed after 12 months but before 24 months
60% if filed after 24 months but before 36 months
70% if filed after 36 months but before 48 months
This additional tax is calculated on the total tax and interest payable on the extra income disclosed.
Updated Return in Loss Cases
At present, taxpayers can file an updated return if their original return showed a loss but the updated return shows income.
However, filing an updated return is not allowed if it results in a reduced loss or continued loss for the same year.
What Changes Are Proposed in Finance Bill 2026
The Finance Bill, 2026 proposes to expand the scope of updated returns.
Once the amendment becomes law, taxpayers will be allowed to file an updated return even if they want to reduce the loss claimed in their original return.
This gives more flexibility to taxpayers who earlier overstated losses.
Updated Return After Reassessment Notice
Earlier, filing an updated return was not allowed if reassessment proceedings had started.
Now, a change is proposed to allow filing an updated return even after receiving a reassessment notice under Section 280, within the time mentioned in the notice.
No penalty will be imposed on income disclosed through such an updated return.
However, the additional tax will be higher:
35% if filed within 12 months
60% if filed after 12 but before 24 months
70% if filed after 24 but before 36 months
80% if filed after 36 but before 48 months
Will Reassessment Stop After Filing ITR-U
Filing an updated return does not stop reassessment proceedings.
However, the Income Tax Department will not levy penalties for under-reporting or misreporting on the income disclosed in the updated return filed after a reassessment notice.
When Will These Changes Apply
The expanded rules for loss reduction and reassessment cases will apply only after the Finance Act, 2026 is enacted.
No Fee for Filing Updated Return
There is no separate fee for filing an updated return.
Taxpayers only need to pay the applicable tax, interest, and additional tax.
Why This Is Important After Budget 2026
These clarifications show the government’s intent to encourage voluntary compliance, while still discouraging delays through higher additional taxes.
For taxpayers, this means more chances to correct mistakes, but at a cost that increases with time. Filing early remains the smartest option.
