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What is Self-Assessment Tax and How Does it Work?

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More than 80 million people file taxes in India each year. Every individual, both residents and non-residents, must calculate their income from various sources and pay tax after adjusting applicable exemptions and deductions in the current year. The Indian government collects these taxes in multiple ways, including TDS, advance tax, and self-assessment tax. In the following sections, you will find an overview of self-assessment taxation, its meaning, calculation, payment procedure, and other important aspects.

What is Self Assessment Tax?

The self-assessment tax is different from the Goods and Service Tax. The concept of self-assessing the tax arises when the payable tax for TDS, TCS, or advance tax is less than the tax liability. It arises in the following conditions:

  • You omitted some income when calculating the payable advance tax.
  • You received expected income or gains from other sources not included in the TDS.
  • Your TDS deduction was made at a rate lower than applicable.
  • If you changed your job and your new employer did not consider your previous employer’s payment.

You must pay your self-assessment tax at the earliest before closing the financial year to avoid any unnecessary interest burden. 

Calculating the Self-Assessment Tax

To calculate the self-assessment tax, reduce all available credits, including advance tax, TDS, TCS, tax rebates under Section 87A, 89, 90, and 91, and credit for minimum and maximum alternate tax. According to Section 140A of the Income Tax Act, you must pay late fee and interest with the tax, if applicable. 

Steps to Pay Self-Assessment Tax

The payment of self-assessment tax requires filling out challan 280 and submitting it online or offline. Follow these steps for online tax payment:

  • Visit the income tax portal at https://eportal.incometax.gov.in/ 
  • Enter your Permanent Account Number (PAN) to log in.
  • Click “e-pay tax” under the “e-filing”.
  • Select “New Payment” under the pay e-tax option.
  • Click “Proceed” under the “Income Tax” tab.
  • Select the correct assessment year.
  • Select the payment type as “Self-Assessment Tax (300)”.
  • Click “Continue”.
  • After adding all tax liabilities and other necessary details, click “Continue”.
  • Select the payment mode and click “Continue”.
  • Preview the details and make the required payment.

Following is the procedure for offline tax payment: 

  • Download and print out tax challan 280 from the website. 
  • Enter details like PAN, residential address, assessment year, and contact details.
  • Fill in the challan form and submit it physically to an authorised bank with the payment cheque, cash, or demand draft. 
  • Collect the challan receipt from the bank.
  • Save a copy of the challan, as you will require it when filing ITR. 

Payment Due Date 

The self-assessment tax has no specified date for payment. However, you must pay it at the easiest after computing your income for the year to avoid interest. Further, paying it before filing the Income Tax Return is mandatory. The time frame for tax payment is at the end of a financial year but before filing the online ITR.

Threshold Limit

According to Section 140A of the IT Act, the calculation of payable balance on self-assessment tax depends on the deduction of eligible credits irrespective of the applicable threshold limits.

Consequences of Part-Payment or Non-Payment

Part-payment or non-payment of the self-assessment tax leads to the following consequences: 

  • ITR Considered as Defective Return: The tax authorities only consider the ITR complete if you pay the SA tax. Section 139 (9) of the IT Act states that such ITR is incomplete, defective, and invalid.
  • Interest Liability: Section 140A (1) imposes fees and interest you must pay before filing the ITR. Delaying the tax payment also attracts higher interest penalties under Sections 234A, 234B, and 234C. Late filing fee is also applicable under Section 234F.
  • Penalty: Section 140A(3) considers incomplete tax payment as default for the unpaid amount. According to Section 221(1), a default leads to a penalty, according to the assessing officer’s discretion, not exceeding the arrear amount.

Read Also: What are Small-Scale Industries?

As a taxpayer, you should duly pay your self-assessment tax after factoring in TDS, TCS, advance tax, and other tax credits like foreign tax credits, rebates, etc. Timely tax payment avoids unnecessary penalties and interest. However, ensure entering proper details in the challan.

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