Section 266: self-assessment

Introduction

Section 266 requires a filer to compute and pay self-assessment tax after accounting for advance tax, TDS/TCS and other permissible credits.

The return and payment records should reconcile so that the tax, interest and fee position is supported.

Key takeaways

Obligation to pay tax before filing

Where tax is payable on the basis of a return required under Section 263, 268, 280 or 294 (after accounting for the credits listed below), the assessee must pay that tax together with any interest and fee payable for delay in filing the return or for default/delay in advance tax payment, before furnishing the return. The return must be accompanied by proof of payment of the tax, interest and fee.

Credits accounted for before computing what's payable

Before working out the self-assessment tax due, the following amounts already available to the assessee are taken into account:

• Tax already paid under any provision of the Act
• Tax deducted or collected at source
• Relief of tax claimed under Section 157
• Relief of tax or deduction of tax claimed under Section 159(1) or 160 for tax paid in a country outside India
• Relief of tax claimed under Section 159(2) for tax paid in a specified territory outside India
• Tax credit claimed to be set off as per Section 206(2)(e) to (h) and 206(3) and (4)
• Any tax or interest payable according to Section 391(2)

Order of adjustment for a shortfall

If the amount paid by the assessee falls short of the aggregate tax, interest and fee payable, the amount paid is first adjusted toward the fee payable, then toward the interest payable, and the balance (if any) toward the tax payable.

How interest is computed

Interest payable under Section 423 (for delay in furnishing the return) is computed on the tax on total income declared in the return, reduced by advance tax paid, TDS/TCS, and the various reliefs/tax credits listed above.

Interest payable under Section 424 is computed on the "assessed tax" - or on the shortfall between advance tax paid and the assessed tax. "Assessed tax" here means tax on the total income declared in the return, reduced by TDS/TCS under Chapter XIX-B, the Section 157/159/160 reliefs, and the Section 206 tax credit.

Effect on regular assessment and default

After a regular assessment under Section 270 or 271, or an assessment under Section 294, any amount paid under this section is deemed to have been paid toward that assessment.

If an assessee fails to pay the whole or part of the tax, interest or fee due under this section, they are deemed to be an assessee in default for the unpaid amount, and all provisions of the Act apply accordingly - without prejudice to any other consequences the assessee may face.

Step-by-step flow for paying self-assessment tax under Section 266

1. 1

   Is a return being furnished under section 263, 268, 280 or 294?

   Section 266(1) applies to tax payable on the basis of a return required under any of these sections.

   • No: Section 266 does not apply to the payment.
   • Yes: Go to the next step.
2. 2

   Is any tax still payable after the credits in Section 266(2)?

   Deduct tax already paid, tax deducted or collected at source, reliefs claimed under sections 157, 159(1), 159(2) and 160, tax credits under section 206(2)(e) to (h), (3) and (4), and tax or interest payable under section 391(2).

   • No: No self-assessment tax arises under Section 266(1).
   • Yes: Go to the next step.
3. 3

   Add interest and fee for delay in the return or default in advance tax

   Interest under section 423 is computed on the tax on declared income less the items in Section 266(4). Interest under section 424 is computed on "assessed tax" as defined in Section 266(6), or on the shortfall of advance tax against it (Section 266(5)). Section 266 does not state the rates; those come from sections 423 and 424.

4. 4

   Pay before furnishing the return and attach proof of payment

   Section 266(1)(a) and (b) require payment of tax, interest and fee before the return is furnished, and the return must be accompanied by proof of payment.

5. 5

   Was the full amount paid?

   If the payment falls short, Section 266(3) applies it first to the fee, then to interest, and only the balance to tax.

   • Yes: After a regular assessment under section 270 or 271, or an assessment under section 294, the amount is deemed paid towards that assessment (Section 266(7)).
   • No: The assessee is deemed to be an assessee in default for the unpaid amount (Section 266(8)), without prejudice to other consequences (Section 266(9)).

Practical checklist

Frequently asked questions