After the Budget, updating ITR may cost you more than a reassessment
Subscribe to enjoy similar stories. The 2025 Budget has extended the window for filing updated income tax returns (ITRs) from two years to four. So, after you file an ITR, you get four years from the end of the assessment year to include any additional income in the updated ITR that you have missed reporting in the original tax return.
Sounds like a good deal for voluntary compliance? It is, only until you realise it is no free lunch and comes with a 25-70% tax penalty. The highest penal tax is 70% of the aggregate of tax due and interest when the updated ITR is filed in the fourth year. In the third year, the penal tax is 60%.
Here’s another catch – the cost of voluntary compliance by filing an updated return in the third or fourth year is much higher than getting a reassessment notice from the tax department. When a case is reassessed for underreported income and a penalty order is passed, 50% of the tax due is to be paid as penalty. Take note, the penalty is levied on just the tax due, unlike an updated ITR, where the penalty is on the tax due plus the interest payable on it.
Therefore, the penalty in the case of reassessment will work out much lower than what you would pay by filing an updated ITR. Also read: Mint Explainer: Can capital gains make you ineligible for a tax rebate? Even after giving two more years to file updated returns, the Budget has opened a loophole where some taxpayers may not file updated ITRs in the third or fourth year to escape the heavy penalties. Under Section 148, past income tax returns can be reopened for assessment up to three years from the end of the assessment year if the unreported income is below ₹50 lakh.
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