Section 266 Self-assessment.

Income-tax Act, 2025

At a Glance

Document is Clause 266 of the Income Tax Bill, 2025 - (Old Version) titled "Self-assessment." It prescribes the liabilities and procedural requirements for payment of tax, interest and fee when a return of income (u/ss 263, 268, 280 or 294) shows tax payable. The provision affects assessees required to file such returns and the revenue where collection and adjustment of credits arise. Effective date or enactment date: Not stated in the document.

Background & Scope

Statutory hook: Clause 266 of the Income Tax Bill, 2025 (Old Version), captioned "Self-assessment." Context: deals with payment obligations that arise when a return of income shows tax payable after accounting for various payments, deductions and credits. Coverage extends to returns required u/ss 263, 268, 280 or 294. Definitions: the clause supplies a definition for "assessed tax" in sub-section (6) by reference to the tax as declared in the return reduced by certain amounts. No other definitions or explanatory notes are provided in the text. Relevant cross-references within the clause include sections 157, 159(1), 159(2), 160, 206 and 391(2); Chapter XIX-B is referenced for source deduction/collection. Further legislative context or objectives: Not stated in the document.

Statutory Provision Mode

Text & Scope

• Clause 266 imposes pre-filing payment obligations where, after accounting for amounts listed in sub-section (2), any tax is payable on the basis of a return required u/ss 263, 268, 280 or 294. Two primary obligations follow:
  • (a) the assessee must pay the tax payable together with applicable interest and fee under any provision of the Act for delays in filing or defaults in advance tax payment before filing the return; and
  • (b) the return must be accompanied by proof of payment of the tax, interest and fee.
• Sub-section (2) enumerates the amounts to be taken into account in arriving at tax payable:
  • (a) any tax already paid under the Act;
  • (b) taxes deducted or collected at source;
  • (c) relief claimed u/s 157;
  • (d) relief or deduction u/s 159(1) or section 160 for tax paid in a foreign country;
  • (e) relief u/s 159(2) for tax paid in any specified territory outside India;
  • (f) any tax credit claimed to be set off as per section 206(13); and
  • (g) any tax or interest payable according to section 391(2).
• Sub-section (3) prescribes the order of adjustment where the amount paid under sub-section (1) is insufficient: first applied to the fee payable, thereafter to interest, and the balance, if any, towards tax.
• Sub-section (4) says interest u/s 423 shall be computed on tax on total income declared in the return reduced by listed items:
  • (a) advance tax paid;
  • (b) tax deducted/collected at source;
  • (c) relief u/s 157;
  • (d) relief u/s 159(1) or 160 for tax paid abroad;
  • (e) relief u/s 159(2); and
  • (f) any tax credit claimed to be set off as per section 206(13).
• Sub-section (5) provides that interest u/s 424 shall be computed on an amount equal to the "assessed tax" or the shortfall in advance tax against assessed tax.
• Sub-section (6) defines "assessed tax" for purposes of sub-section (5) as tax on total income declared in return reduced by:
  • (a) tax deducted/collected at source under Chapter XIX-B on income taken into account;
  • (b) relief u/s 157;
  • (c) relief u/s 159(1) or 160 for tax paid abroad;
  • (d) relief u/s 159(2) for specified territories; and
  • (e) any tax credit claimed to be set off as per section 206(13).
• Sub-sections (7)-(9) address post-assessment treatment and consequences: payments made under sub-section (1) shall be deemed paid towards a subsequent regular assessment u/ss 270 or 271 or an assessment u/s 294 (sub-section (7)); failure to pay in full renders the assessee an "assessee in default" with all consequences under the Act (sub-section (8)); and sub-section (8) applies without prejudice to any other consequences (sub-section (9)).

Interpretation

The clause embodies a self-assessment model that conditions filing on payment of tax, interest and fees reflected in the return after accounting for specified credits and reliefs. The legislative intent, as indicated by the text, appears to be to prevent returns being filed without contemporaneous payment and to ensure that computation of interest (sections 423 and 424) is based on a post-credit tax amount. The text indicates a hierarchical approach to adjusting short payments (fee first, then interest, then tax), signalling a policy choice to prioritise recovery of fee and interest. The clause also integrates international tax relief provisions (sections 159/160) and source taxation mechanisms (Chapter XIX-B) into the self-assessment computation. No explicit legislative statement of purpose or policy rationale is included in the clause.

Exceptions/Provisos

No additional provisos or carve-outs are stated in the clause. Specific thresholds, exemptions or procedural exceptions are Not stated in the document.

Illustrations

• Example 1: A taxpayer files a return u/s 268 showing taxable income and computed tax of INR X after accounting for TDS and reliefs listed in sub-section (2). If additional tax payable is Y, the taxpayer must pay Y together with any interest and fee before filing and attach proof of payment. If payment made is short by Z, it will be first applied to fee, then interest, then tax.
• Example 2: For interest computation u/s 423, if the declared tax on total income is A and the taxpayer has advance tax B and a tax credit claimed u/s 206(13) of C, interest will be computed on A reduced by (B + C) and other listed reliefs as applicable.

Interplay

The clause expressly interacts with a range of provisions: sections 157, 159, 160, 206 (specifically section 206(13) in this text), sections 263, 268, 270, 271, 280, 291(?), 294, 391(2), and Chapters XIX-B. The text anticipates adjustments to tax liability for foreign tax reliefs and tax credits claimed u/s 206(13). There is no mention of Rules, Notifications or Circulars that further clarify implementation. Any potential conflicts or interpretive issues with other provisions of the Bill/Act are Not stated in the document.

Differences between the two provided provisions and practical impact

Comparison basis: Document 1 (Section 266, Income-tax Act, 2025) versus Document 2 (Clause 266 of the Income Tax Bill, 2025 - (Old Version)).

• Tax credit cross-references: Document 2 repeatedly refers to "section 206(13)" as the provision governing tax credits to be set off (sub-sections (2)(f), (4)(f), (6)(e)). Document 1, by contrast, specifies a range of provisions: "sections 206(1)(m) to (p) and 206(2)(e) to (h)" in the corresponding places.
  • Practical impact: the Act version (Document 1) expressly broadens and specifies the categories of tax credit provisions available for set-off; the Bill old version (Document 2) uses a single internal reference (206(13)) which, depending on the content of section 206(13), could be narrower or less precise. Where the Act text enumerates multiple sub-clauses of section 206, it reduces ambiguity about which tax credits may be applied; the Bill text may create uncertainty if section 206(13) does not encompass all intended credits. This difference has practical consequences for taxpayers asserting particular tax credits when computing payable tax and interest.
• Drafting/typographical variances: Document 2 contains minor drafting artifacts (e.g., an extra comma and a trailing "and." in sub-section (6) list).
  • Practical impact: such drafting defects could give rise to interpretive queries or require clarificatory amendments; however, substantive effect depends on the larger legislative context. The enacted text in Document 1 appears to have corrected and expanded the cross-references.

Practical Implications

• Compliance and risk areas: Assessees required to furnish returns under the listed sections must ensure contemporaneous payment of any tax, interest and fee shown as payable after accounting for specified credits and reliefs. Failure to attach proof of payment will contravene the filing requirement and may trigger "assessee in default" consequences. The ordering of application of short payments (fee -> interest -> tax) creates a compliance risk where taxpayers intending to reduce principal tax liability may find payments applied primarily to fees and interest.
• Record-keeping/evidence: The provision mandating that returns be accompanied by proof of payment requires taxpayers to retain and present verifiable payment evidence. Records evidencing claimed reliefs (sections 157, 159, 160) and tax credit documentation u/s 206(13) should be maintained to support the reductions used for interest computation and assessed tax determination.

Key Takeaways

• Clause 266 conditions filing of specified returns on pre-payment of tax, interest and fee as shown in the return after accounting for listed credits and reliefs.
• Detailed list of items to be deducted from declared tax includes advance tax, TDS/TCS, specified foreign tax reliefs and tax credit u/s 206(13).
• Short payments are adjusted in a prescribed order: fee first, then interest, then tax.
• Interest u/s 423 is computed on tax reduced by specific credits and reliefs; interest u/s 424 is computed on "assessed tax" or the shortfall in advance tax.
• Payments made prior to assessment will be treated as payments towards a later regular assessment; non-payment renders the assessee an assessee in default with statutory consequences.
• Document lacks effective date, legislative history, administrative guidance and specifics on procedural implementation-those are Not stated in the document.

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Full Text:

Section 266 Self-assessment.

Self-assessment requirement: pre-payment of tax, interest and fee before filing specified income-tax returns, with proof attached. The clause requires payment of tax, interest and fee before filing specified income-tax returns where tax remains payable after deducting advance tax, source deductions, specified foreign tax reliefs and tax credits; returns must be accompanied by proof of payment, interest under the Act is computed on declared tax reduced by those credits, and a defined 'assessed tax' serves as the base for interest on advance tax shortfall.