Comprehensive Guide to Section 140B: Taxation of Updated Returns Under the Income Tax Act

Section 140B governs the tax payment mechanism when an assessee furnishes an updated return under Section 139(8A). This provision was introduced to allow taxpayers to rectify their tax filings by submitting an updated return for prior financial years, albeit with an additional tax liability.

The provision applies to two categories of taxpayers:

1. Those who had not filed a return under Section 139(1) or (4).
2. Those who had filed a return but need to update it under Section 139(8A).

Key Provisions of Section 140B

1. Tax Calculation for Non-Filers (Sub-section 1)

If an assessee had not filed any return previously and now wishes to file an updated return under Section 139(8A), the tax liability is determined after adjusting for:

• Advance tax paid, if any.
• Tax deducted or collected at source (TDS/TCS).
• Tax reliefs claimed under Sections 89, 90, 90A, or 91 (relating to foreign tax credits).
• Tax credits under Sections 115JAA or 115JD (MAT or AMT credit).

The assessee must pay the remaining tax liability, along with:

• Interest under relevant sections (e.g., 234A, 234B, 234C) for delayed payment.
• Fee for delay in return filing.
• An additional income tax levy, as per sub-section (3).

The updated return must be accompanied by proof of payment of all dues.

Example

Mr. X, a salaried employee, did not file his return for FY 2022-23. He now wishes to file an updated return under Section 139(8A) in January 2025. His tax calculation is as follows:

• Tax liability on total income: Rs 2,00,000
• TDS deducted by the employer: Rs 1,50,000
• Tax paid as advance tax: Rs 20,000
• Outstanding tax due: Rs 30,000

Since he is filing an updated return beyond 12 months but within 24 months, he will also pay an additional tax of 50% on tax and interest, per sub-section (3).

2. Tax Calculation for Those Who Filed an Earlier Return (Sub-section 2)

If an assessee previously filed a return (original, belated, or revised) and now wants to update it under Section 139(8A), the tax liability is computed after adjusting:

• Earlier tax reliefs under Section 140A.
• TDS/TCS credits on newly declared income.
• Foreign tax credits under Sections 90, 90A, or 91 on new income.
• MAT or AMT credits under Sections 115JAA or 115JD (if applicable).
• Refunds received earlier (which must now be paid back).

Additionally, the assessee must pay:

• Interest under relevant sections (234A, 234B, etc.).
• Additional tax under sub-section (3).

Example

Ms. Y filed her income tax return for FY 2022-23 in July 2023. Later, she realized she missed reporting some capital gains of Rs 5,00,000. She now files an updated return in August 2024.

• Additional tax on Rs 5,00,000: Rs 1,00,000
• Interest under Section 234B & 234C: Rs 10,000
• Refund received earlier: Rs 5,000 (to be repaid)
• Additional tax @ 25% (since filed within 12 months): Rs 27,500

Total tax due before filing = Rs 1,42,500

3. Additional Income-Tax (Sub-section 3)

The law imposes an additional tax on updated returns as follows:

This discourages late filings while giving taxpayers a window to rectify omissions with penal consequences.

Example

If an assessee owes Rs 2,00,000 in tax and Rs 20,000 as interest, then:

• If filed within 12 months → Additional tax = Rs 55,000 (25% of Rs 2,20,000)
• If filed after 12 months but within 24 months → Additional tax = Rs 1,10,000 (50% of Rs 2,20,000)

4. Special Interest Computation under Section 234B (Sub-section 4)

• Interest under Section 234B is computed on the assessed tax as per the updated return.
• The interest is recalculated considering any earlier refunds, tax credits, or deductions that were previously unclaimed but are now included.

Example

A taxpayer initially declared Rs 10,00,000 income but later updated it to Rs 15,00,000.

• Interest under 234B will now be recalculated based on the new assessed tax for Rs 15,00,000, not Rs 10,00,000.

5. Guidelines and Parliament Oversight (Sub-sections 5 & 6)

• If implementation issues arise, the CBDT (Central Board of Direct Taxes), with government approval, can issue clarifications via notifications.
• Such guidelines must be presented in Parliament for transparency.

Conclusion & Practical Implications

• Section 140B is a key compliance measure, allowing taxpayers to voluntarily rectify errors while imposing a penalty for late disclosures.
• The additional tax ensures revenue protection while discouraging misuse of the updated return facility.
• Businesses and individuals should file correct returns initially, as updated returns attract a steep penalty (25-50%).
• Foreign tax credits, MAT/AMT credits, and refund adjustments must be carefully accounted for to avoid overpayment or disputes.