Budget 2026: Taxpayers allowed to File Updated Income Tax Returns Even After Reassessment Begins
Budget 2026 allows taxpayers to file updated income tax returns even after reassessment proceedings begin, subject to payment of additional tax and without penalty on disclosed income.
The Union Budget for the Financial Year 2026–27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026). The Budget proposes to expand the scope of filing updated income tax returns as part of the government’s efforts to reduce litigation and encourage voluntary tax compliance. At present, taxpayers are allowed to file an updated...
The Union Budget for the Financial Year 2026–27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026).
The Budget proposes to expand the scope of filing updated income tax returns as part of the government’s efforts to reduce litigation and encourage voluntary tax compliance.
At present, taxpayers are allowed to file an updated return to declare additional income within a period of four years from the end of the relevant assessment year. Depending on how late the updated return is filed, an additional tax ranging from 25% to 70% of the tax and interest payable is required to be paid.
Under Budget 2026, the government has proposed to allow taxpayers to file an updated return even after reassessment proceedings have been initiated. This is a significant change, as reassessment proceedings typically restrict the ability of taxpayers to revise or correct their returns once they begin.
Such updated returns will be permitted on payment of an additional 10% tax, over and above the applicable tax rate for the relevant assessment year.
The proposal also allows taxpayers to file an updated return to reduce the amount of loss declared in the original return, including cases covered under Section 263(1) of the Income Tax Act. This provides flexibility to taxpayers who may have overstated losses in earlier filings.
Further, the Budget states that no penalty will be levied on the additional income reported through an updated return, provided the taxpayer complies with the prescribed conditions. This is aimed at encouraging disclosures without fear of penal consequences.
The updated return facility was first introduced to promote voluntary compliance by allowing taxpayers to correct omissions or errors. According to the government, a large number of taxpayers have already used this facility in earlier years to declare additional income and pay due taxes.
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