diff --git a/docs/pages/pmd/rules/java/errorprone.md b/docs/pages/pmd/rules/java/errorprone.md
index 98ca28c032..173243fa7a 100644
--- a/docs/pages/pmd/rules/java/errorprone.md
+++ b/docs/pages/pmd/rules/java/errorprone.md
@@ -2790,7 +2790,7 @@ Avoid returning from a finally block, this can discard exceptions.
 
 **This rule is defined by the following XPath expression:**
 ``` xpath
-//FinallyStatement//ReturnStatement
+//FinallyStatement//ReturnStatement except //FinallyStatement//(MethodDeclaration|LambdaExpression)//ReturnStatement
 ```
 
 **Example(s):**
diff --git a/docs/pages/release_notes.md b/docs/pages/release_notes.md
index d84371b973..74549e2297 100644
--- a/docs/pages/release_notes.md
+++ b/docs/pages/release_notes.md
@@ -18,11 +18,14 @@ This is a {{ site.pmd.release_type }} release.
 
 *   java-bestpractices
     *   [#658](https://github.com/pmd/pmd/issues/658): \[java] OneDeclarationPerLine: False positive for loops
+*   java-errorprone
+    *   [#1035](https://github.com/pmd/pmd/issues/1035): \[java] ReturnFromFinallyBlock: False positive on lambda expression in finally block
 
 ### API Changes
 
 ### External Contributions
 
+*   [#1503](https://github.com/pmd/pmd/pull/1503): \[java] Fix for ReturnFromFinallyBlock false-positives - [RishabhDeep Singh](https://github.com/rishabhdeepsingh)
 *   [#1516](https://github.com/pmd/pmd/pull/1516): \[java] OneDeclarationPerLine: Don't report multiple variables in a for statement. - [Kris Scheibe](https://github.com/kris-scheibe)
 *   [#1521](https://github.com/pmd/pmd/pull/1521): \[java] Upgrade to ASM7 for JDK 11 support - [Mark Pritchard](https://github.com/markpritchard)
 
diff --git a/pmd-java/src/main/resources/category/java/errorprone.xml b/pmd-java/src/main/resources/category/java/errorprone.xml
index 93930f8694..bad84763b5 100644
--- a/pmd-java/src/main/resources/category/java/errorprone.xml
+++ b/pmd-java/src/main/resources/category/java/errorprone.xml
@@ -2666,8 +2666,9 @@ Avoid returning from a finally block, this can discard exceptions.
         </description>
         <priority>3</priority>
         <properties>
+            <property name="version" value="2.0"/>
             <property name="xpath">
-                <value>//FinallyStatement//ReturnStatement</value>
+                <value>//FinallyStatement//ReturnStatement except //FinallyStatement//(MethodDeclaration|LambdaExpression)//ReturnStatement</value>
             </property>
         </properties>
         <example>
diff --git a/pmd-java/src/test/resources/net/sourceforge/pmd/lang/java/rule/errorprone/xml/ReturnFromFinallyBlock.xml b/pmd-java/src/test/resources/net/sourceforge/pmd/lang/java/rule/errorprone/xml/ReturnFromFinallyBlock.xml
index 6a0c3a8795..29eb774bb7 100644
--- a/pmd-java/src/test/resources/net/sourceforge/pmd/lang/java/rule/errorprone/xml/ReturnFromFinallyBlock.xml
+++ b/pmd-java/src/test/resources/net/sourceforge/pmd/lang/java/rule/errorprone/xml/ReturnFromFinallyBlock.xml
@@ -4,9 +4,7 @@
     xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
     xsi:schemaLocation="http://pmd.sourceforge.net/rule-tests http://pmd.sourceforge.net/rule-tests_1_0_0.xsd">
     <test-code>
-        <description><![CDATA[
-throw exception but return from finally
-     ]]></description>
+        <description>throw exception but return from finally</description>
         <expected-problems>1</expected-problems>
         <code><![CDATA[
 public class Foo {
@@ -23,9 +21,7 @@ public class Foo {
      ]]></code>
     </test-code>
     <test-code>
-        <description><![CDATA[
-lots of returns
-     ]]></description>
+        <description>lots of returns</description>
         <expected-problems>1</expected-problems>
         <code><![CDATA[
 public class Foo {
@@ -42,9 +38,7 @@ public class Foo {
      ]]></code>
     </test-code>
     <test-code>
-        <description><![CDATA[
-ok
-     ]]></description>
+        <description>ok</description>
         <expected-problems>0</expected-problems>
         <code><![CDATA[
 public class Foo {
@@ -57,4 +51,93 @@ public class Foo {
 }
      ]]></code>
     </test-code>
+    <test-code>
+        <description>#1035 [java] ReturnFromFinallyBlock: False positive on lambda expression in finally block</description>
+        <expected-problems>0</expected-problems>
+        <code><![CDATA[
+public class Foo {
+    String bar() {
+    try {
+    } finally {
+        Object o = new Object() {
+            @Override
+            public String toString() {
+                return "";
+            }
+        };
+    }
+  }
+}
+        ]]></code>
+    </test-code>
+    <test-code>
+        <description>Return from Lambda in Finally</description>
+        <expected-problems>0</expected-problems>
+        <code><![CDATA[
+public class Foo {
+  String getBar() {
+   try {
+   } finally {
+    Collection<ServiceExecutionEntry> untracked = serviceExecutionTracker.untrackMatchingEntries(e -> {
+        ServiceExecutionIdentifiers ids = e.getIdentifiers();
+        Long execBqiId = (ids == null) ? null : ids.getBqiId();
+        return Objects.equals(bqiId, execBqiId);
+    });
+    untracked.forEach(e -> logger.info("overwriteLastBqi(bqId={}, bqiId={}) untracked {}", bqId, bqiId, e));
+  }
+ }
+}
+     ]]></code>
+    </test-code>
+    <test-code>
+        <description>return from a lambda should not cause issues</description>
+        <expected-problems>0</expected-problems>
+        <code><![CDATA[
+public class Foo {
+    void printSomething() {
+        try {
+            System.out.println("Integers: ");
+        } finally {
+            Arrays.asList(0, 1, 2).map(i -> { return i + 1; }).forEach(i -> System.out.println(i));
+        }
+    }
+}
+        ]]></code>
+    </test-code>
+    <test-code>
+        <description>Return in finally should give error but not in lambda</description>
+        <expected-problems>1</expected-problems>
+        <code><![CDATA[
+public class Foo {
+    String printSomething() {
+        try {
+            System.out.println("Integers: ");
+        } finally {
+            Arrays.asList(0, 1, 2).map(i -> { return i + 1; }).forEach(i -> System.out.println(i));
+            return "foo";
+        }
+    }
+}
+        ]]></code>
+    </test-code>
+    <test-code>
+        <description>Return from anonyous class should not give any error</description>
+        <expected-problems>0</expected-problems>
+        <code><![CDATA[
+public class Foo {
+    void printSomething() {
+        try {
+            System.out.println("Integers: ");
+        } finally {
+            Arrays.asList(0, 1, 2).map(new Function<Integer, Integer>() {
+               @Override
+               public Integer apply(Integer i) {
+                   return i + 1;
+               }
+           }).forEach(i -> System.out.println(i));
+        }
+    }
+}
+        ]]></code>
+    </test-code>
 </test-data>