Hundreds of thousands of taxpayers are filing updated Income Tax Returns (ITR-U) in 2025. This surge is largely due to increased vigilance and enforcement by the Income Tax Department, which is cracking down on those who previously made false claims or hid income. In the last four months alone, roughly 40,000 taxpayers have voluntarily withdrawn false claims totaling over ₹1,000 crore.
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The Income Tax Department has been actively identifying non-compliant taxpayers through various means, including:
- Data Analytics and AI: Utilizing advanced tools to detect suspicious patterns and mismatches in financial data from sources like Form 26AS, AIS, and TIS.
- Targeted Investigations: Conducting raids and investigations on individuals and entities suspected of facilitating fraudulent claims. These actions have impacted employees across MNCs, PSUs, government bodies, academic institutions, and even entrepreneurs.
- Increased Penalties: The department is poised to impose severe penalties, including fines up to 200% of the tax payable for misreporting income, and potential prosecution for willful evasion.
- Extended Window: The Finance Act 2025 now allows taxpayers to file ITR-U for up to four years from the end of the relevant assessment year, providing a longer but increasingly costly opportunity to correct past errors.
Should You File an ITR-U?
- No, if you’ve been fully compliant: If you’ve diligently reported all your income and haven’t made any false claims or hidden any income in your past returns, you don’t need to file an ITR-U.
- Yes, if you’ve made mistakes or hidden income: If you’ve:
- Made false claims (e.g., bogus deductions, inflated expenses, fake HRA or 80C investments).
- Hidden any income source (e.g., interest from fixed deposits or savings accounts, income from other sources).
- Applied the wrong tax rate or underreported income.
- Missed filing a return altogether or declared income inaccurately.
