Missed something in your ITR? You can still correct it with ITR-U

The extended four-year window under ITR-U gives taxpayers a chance to fix past errors, but use it wisely, say experts.

When the Income Tax Department introduced the concept of the Updated Return (ITR-U) in Budget 2022, it was welcomed as a progressive step to promote voluntary compliance. With Budget 2025 extending the filing window from two years to four years, the tool has become even more relevant for taxpayers seeking to correct past omissions and maintain a clean record.

“ITR-U allows taxpayers, whether salaried, self-employed, or freelancers to voluntarily rectify genuine mistakes or disclose missed income without waiting for a notice,” said Niyati Shah, chartered accountant and vertical head – personal tax at 1 Finance. “But with greater flexibility comes greater responsibility.”

Common filing errors that lead to updated returns

According to Shah, the most common mistakes involve under-reporting small income sources such as interest from fixed deposits, recurring deposits, or mutual fund dividends. Others include unreported capital gains, foreign income from freelance work, mismatched TDS entries, or even missing e-verification within 30 days of filing.

She cited the case of Priyanka, a salaried taxpayer who later discovered Rs 4 lakh in unreported freelance income from the US. “She used the ITR-U route to disclose the income, pay additional tax, and avoid scrutiny, a smart use of the new provision,” Shah explained.

When not to file an updated return

The ITR-U route isn’t for everyone. Shah cautioned against using it for refund-driven or cosmetic corrections. “You can’t use it to reduce your tax liability or claim additional refunds,” she said.

It’s also off-limits if you’ve already received an assessment or reassessment notice, or if the cost of filing outweighs the benefit. Additional tax can be steep, ranging from 25 per cent to 70 per cent of the total tax and interest, depending on how late the correction is made.

For instance, if a taxpayer owes Rs 1 lakh in tax and interest, filing after one year will cost Rs 25,000 extra; after four years, the total cost rises to Rs 70,000. “The message is simple, the sooner you correct, the lesser the cost,” Shah added.

Best practices to avoid future errors

To minimise future errors, Shah recommends reconciling Form 16, Form 26AS, and the Annual Information Statement (AIS) before filing, maintaining updated records, and engaging a professional. “Most errors happen in the final week rush before the deadline,” she said. “File early, verify promptly, and you’ll rarely need ITR-U.”

The extended four-year window for updated returns underlines the government’s shift towards trust-based compliance. As Shah summed it up: “For genuine taxpayers, it’s a second chance to make things right, but the real win lies in filing accurately the first time.”