Income Tax 2025

Appearance

Self-assessment. ​

266(1) ​

Where, after taking into account the amounts referred to in sub-section (2), any tax is payable on the basis of any return required to be furnished under section 263 or 268 or 280 or 294, then––

  • (a) the assessee shall be liable to pay such tax together with interest and fee payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return; and
  • (b) the return shall be accompanied by proof of payment of tax, interest and fee.

266(2) ​

The amounts referred to in sub-section (1) shall be,—

  • (a) the amount of tax, if any, already paid under any provision of this Act;
  • (b) any tax deducted or collected at source;
  • (c) any relief of tax claimed under section 157;
  • (d) any relief of tax or deduction of tax claimed under section 159(1) or 160 on account of tax paid in a country outside India;
  • (e) any relief of tax claimed under section 159(2) on account of tax paid in any specified territory outside India referred to in that section;
  • (f) any tax credit claimed to be set off as per section 206(13); and
  • (g) any tax or interest payable according to the provisions of section 391(2).

266(3) ​

Where the amount paid by the assessee under sub-section (1) falls short of the aggregate of the tax, interest and fee as payable under the said sub-section, the amount so paid shall be adjusted towards the fee payable and thereafter towards the interest payable and the balance, if any, shall be adjusted towards the tax payable.

266(4) ​

For the purposes of sub-section (1), interest payable under section 423 shall be computed on the tax on the total income as declared in the return as reduced by the amount of,—

  • (a) advance tax, if any, paid;
  • (b) any tax deducted or collected at source;
  • (c) any relief of tax claimed under section 157;
  • (d) any relief of tax or deduction of tax claimed under section 159(1) or 160 on account of tax paid in a country outside India;
  • (e) any relief of tax claimed under section 159(2) on account of tax paid in any specified territory outside India referred to in that section; and
  • (f) any tax credit claimed to be set off as per the provisions of section 206(13);

266(5) ​

For the purposes of sub-section (1), interest payable under section 424 shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax.

266(6) ​

In sub-section (5), “assessed tax” means the tax on the total income as declared in the return as reduced by the amount of,—

  • (a) tax deducted or collected at source, as per the provisions of Chapter XIX-B, on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
  • (b) any relief of tax claimed under section 157;
  • (c) any relief of tax or deduction of tax claimed under section 159(1) or section 160 on account of tax paid in a country outside India;
  • (d) any relief of tax claimed under section 159(2) on account of tax paid in any specified territory outside India referred to in that section; and.
  • (e) any tax credit claimed to be set off as per the provisions of section 206(13).
  • (7) After a regular assessment under section 270 or 271 or an assessment under section 294 has been made, any amount paid under sub section (1) shall be deemed to have been paid towards such regular assessment or assessment.
  • (8) If any assessee fails to pay the whole or any part of such tax, interest or fee as per the provisions of sub-section (1), he shall be deemed to be an assessee in default in respect of the tax, interest or fee remaining unpaid and all the provisions of this Act shall apply accordingly.
  • (9) The provisions of sub-section (8) shall apply without prejudice to any other consequences which the assessee may incur.
Explanation

Section Summary: ​

Section 266 of the new income tax law outlines the process of self-assessment for taxpayers. It specifies the obligations of taxpayers to calculate and pay their tax liability, including interest and fees, before filing their tax return. The section also details how payments are adjusted against tax, interest, and fees, and the consequences of failing to meet these obligations.

Key Changes: ​

  1. Clarification of Payment Order: The new law explicitly states the order in which payments (tax, interest, and fees) are adjusted if the amount paid falls short of the total liability. Payments are first applied to fees, then interest, and finally tax.
  2. Interest Calculation: The section introduces specific rules for calculating interest under Sections 423 and 424, based on the assessed tax and shortfall in advance tax payments.
  3. Deemed Default: Failure to pay the full tax, interest, or fee results in the taxpayer being deemed an "assessee in default," triggering penalties and other legal consequences.

Practical Implications: ​

  1. For Taxpayers: Taxpayers must ensure they accurately calculate their tax liability, including interest and fees, before filing their return. They must also provide proof of payment along with the return.
  2. For Businesses: Businesses must account for tax deductions at source (TDS), advance tax payments, and foreign tax credits when calculating their self-assessment tax liability.
  3. Compliance Burden: Taxpayers must be diligent in tracking payments, interest calculations, and adjustments to avoid being deemed in default.

Critical Concepts: ​

  1. Self-Assessment Tax: The tax calculated by the taxpayer after adjusting for advance tax, TDS, foreign tax credits, and other reliefs.
  2. Assessed Tax: The final tax liability after reducing the declared income by TDS, advance tax, and other allowable reliefs.
  3. Interest under Sections 423 and 424:
    • Section 423: Interest is calculated on the tax payable after adjusting for advance tax, TDS, and other reliefs.
    • Section 424: Interest is calculated on the shortfall between advance tax paid and the assessed tax.
  4. Adjustment Order: If the payment is insufficient, it is first applied to fees, then interest, and finally tax.

Compliance Steps: ​

  1. Calculate Tax Liability: Determine the total tax payable after considering advance tax, TDS, foreign tax credits, and other reliefs.
  2. Pay Tax, Interest, and Fees: Ensure payment of the full amount before filing the return.
  3. Attach Proof of Payment: Submit proof of payment (e.g., challan) along with the tax return.
  4. Adjust Shortfalls: If the payment is insufficient, ensure the adjustment order (fees → interest → tax) is followed.
  5. Avoid Default: Pay the full amount to avoid being deemed an "assessee in default."

Examples: ​

  1. Scenario 1: A taxpayer has a total tax liability of ₹1,00,000. They have already paid ₹70,000 as advance tax and ₹10,000 as TDS. The remaining tax liability is ₹20,000. The taxpayer must pay ₹20,000 along with any applicable interest and fees before filing the return.
  2. Scenario 2: A taxpayer pays ₹15,000 against a total liability of ₹20,000 (tax), ₹2,000 (interest), and ₹1,000 (fees). The payment will first cover the ₹1,000 fee, then ₹2,000 interest, and the remaining ₹12,000 will be adjusted against the tax liability. The taxpayer will still owe ₹8,000 in tax and will be deemed in default for this amount.

This section emphasizes the importance of accurate self-assessment and timely payment to avoid penalties and legal consequences.