Self-Assessment Tax: How to Pay It and What Interest Applies (Income Tax Act 2025)

Self-assessment tax is the tax you still owe after counting advance tax, TDS/TCS and the other credits, and it must be paid before you furnish your return. Under section 266 of the Income-tax Act, 2025, you pay that tax together with any interest and fee that has already built up, and the return must carry proof of payment. Interest on late filing is 1% per month under section 423, and interest on advance tax shortfall is 1% per month or part of a month under section 424.

This guide explains what you pay, how interest is worked out, how a part payment is adjusted, and what happens if you do not pay. The law referred to is the Act as amended by the Finance Act, 2026, applicable from 1 April 2026 (tax year 2026-27). Figures in the examples are illustrations for tax year 2026-27, not advice.

What is self-assessment tax under the Income Tax Act 2025?

When you prepare a return, you compute the tax on your total income and then reduce it by amounts already paid. If something is still payable, section 266(1) says you must pay it, along with interest and fee payable for any delay in furnishing the return or any default or delay in paying advance tax, before furnishing the return. The return has to be accompanied by proof of payment of the tax, interest and fee (section 266(1)(b)).

It applies to returns under section 263 (the regular return), section 268 (return in response to a notice), section 280 and section 294.

What can I deduct before working out the amount payable?

Section 266(2) lists the amounts you take into account first:

Credit	Where in section 266(2)
Tax already paid under any provision of the Act (this includes advance tax)	Clause (a)
Tax deducted or collected at source	Clause (b)
Relief of tax claimed under section 157	Clause (c)
Relief or deduction claimed under section 159(1) or 160 for tax paid outside India	Clause (d)
Relief claimed under section 159(2) for tax paid in a specified territory outside India	Clause (e)
Tax credit claimed to be set off under section 206(2)(e) to (h) and 206(3) and (4)	Clause (f)
Any tax or interest payable under section 391(2)	Clause (g)

Clause (f) was substituted by the Finance Act, 2026 with effect from 1 April 2026, so check the credit references against the current text and not an older copy of the Act.

Which interest do I pay along with self-assessment tax?

Two kinds of interest can sit inside the amount you pay under section 266.

Interest for late or missing return: section 423

If the return is furnished after the due date, the interest is simple interest by the formula I = 1% x A x T, where A is the tax on which interest is payable and T is the number of months comprised in the period from the day after the due date to the date of furnishing the return (section 423(1) and (2), Table Sl. No. 1). For the self-assessment stage, section 266(4) says A is the tax on the total income declared in the return, reduced by advance tax paid, TDS/TCS and the relief and credits in clauses (c) to (f) of that sub-section.

Interest paid under section 266 towards this interest reduces what can be charged later under section 423(4)(c).

Interest for advance tax default: section 424

This applies if you were liable to pay advance tax under section 404 and either did not pay it, or paid less than 90% of the assessed tax (section 424(1)). The rate is 1% for every month or part of a month, starting from 1 April following the tax year. Under section 266(5) the amount charged is the assessed tax (if no advance tax was paid) or the shortfall of advance tax against the assessed tax.

"Assessed tax" under section 266(6) is the tax on the total income declared in the return, reduced by TDS/TCS on income that is subject to such deduction and included in total income, and by the relief and credits in clauses (b) to (e) of that sub-section. Section 424(4) adds that interest runs up to the date you actually pay tax under section 266, and is reduced by interest already paid under section 266.

How do I calculate the amount to pay? Worked examples

Example 1: advance tax shortfall, return filed on time (tax year 2026-27)

Meena is a salaried employee with interest income. Assumptions: tax on her total income is Rs 2,40,000, TDS is Rs 60,000, advance tax paid is Rs 1,20,000, no other credits. She pays on 20 July 2027 and files her return the same day, before the due date.

Step	Working	Rs
1. Assessed tax (s. 266(6))	2,40,000 - 60,000 TDS	1,80,000
2. 90% of assessed tax	1,80,000 x 90%	1,62,000
3. Advance tax paid is below 90%?	1,20,000 < 1,62,000, so section 424 applies	-
4. Shortfall (s. 266(5))	1,80,000 - 1,20,000	60,000
5. Months, 1 April 2027 to 20 July 2027	April, May, June, July (part month counts)	4
6. Interest, s. 424	1% x 60,000 x 4	2,400
7. Tax still payable	2,40,000 - 60,000 - 1,20,000	60,000
Pay before filing	60,000 + 2,400	62,400

Example 2: full advance tax paid, return filed late (tax year 2026-27)

Ravi runs a small trading business with accounts that are not required to be audited. Under section 263(1)(c), Table Sl. No. 3, his due date is 31 August (2027), on the assumption that section 172 does not apply to him (that is the condition in the Table). Assumptions: tax on total income Rs 5,00,000, no TDS, advance tax paid on time Rs 4,50,000. He pays and files on 30 November 2027.

Step	Working	Rs
1. Section 424 test	90% of 5,00,000 = 4,50,000; advance tax paid is not less than that, so no section 424 interest	0
2. A for section 423 (s. 266(4))	5,00,000 - 4,50,000	50,000
3. T	1 September to 30 November 2027: September, October, November	3 months
4. Interest, s. 423	1% x 50,000 x 3	1,500
Pay before filing	50,000 tax + 1,500 interest (plus any fee payable for the late return)	51,500

Section 266(1)(a) also covers "fee" payable for delay in furnishing the return. The amount of that fee comes from another provision, which this article does not cover, so it is not included above.

Example 3: part payment, how it is adjusted

Section 266(3) fixes the order if you pay less than the total: first the fee, then the interest, then the tax. Take Ravi's case above, with no fee, and suppose he pays only Rs 20,000.

Item	Due Rs	Adjusted Rs	Left Rs
Interest	1,500	1,500	0
Tax	50,000	18,500	31,500

The Rs 31,500 still unpaid falls under section 266(8), explained below.

What if I do not pay self-assessment tax?

If you fail to pay the whole or any part of the tax, interest or fee due under section 266(1), you are deemed to be an assessee in default for the unpaid amount and the provisions of the Act apply accordingly (section 266(8)). This is without prejudice to any other consequence you may face (section 266(9)).

Once a regular assessment under section 270 or 271, or an assessment under section 294, is made, whatever you paid under section 266 is treated as paid towards that assessment (section 266(7)).

Is it still called Challan 280, and how do I pay?

Many pages still use the old challan name for this payment. Section 266 and the Income-tax Rules, 2026 that we checked do not name a challan number for self-assessment tax. What section 266(1)(b) requires is that the return carries proof of payment. Use the payment option the Income Tax Department's e-filing portal offers for self-assessment tax, and keep the payment receipt details ready to enter in the return.

Does this apply to my return for income earned before 1 April 2026?

Section 266 is part of the Income-tax Act, 2025, which applies from tax year 2026-27. Section 536(2)(c) says the repealed Income-tax Act, 1961 continues to apply to proceedings for any tax year beginning before 1 April 2026, following the procedure in that Act. So for income of the year ending 31 March 2026, check the old-law provisions and do not apply sections 266, 423 and 424 as described here. The 2025 Act uses "tax year" in place of the old assessment year and previous year terms.

Real-life scenarios

Suresh pays but forgets the proof. Suresh deposits his tax on the last day and files the return without the challan details. Section 266(1)(b) requires the return to be accompanied by proof of payment, so he should keep the challan reference ready and enter it correctly in the return.

Anita has TDS on rent and a foreign tax credit. Anita's tax payable looks high until she subtracts TDS (clause (b)) and the relief for tax paid abroad (clauses (d) or (e)). What she owes under section 266 is the balance after those credits, not the gross tax. For TDS on rent, see our guide on TDS on rent under the Income Tax Act 2025.

Kiran got a notice. Kiran furnishes a return in response to a notice under section 268. Section 266 applies to that return as well, so any tax payable on it is also paid before furnishing. If you want to correct a return after filing, see the guide on the updated return, additional tax and time limit. If your accounts need an audit, see tax audit: who needs it, limits and due date, because that affects your due date under section 263.

Quick reference

Item	Rule	Section
When to pay	Before furnishing the return	266(1)(a)
Proof	Return must carry proof of payment	266(1)(b)
Order of adjustment on short payment	Fee, then interest, then tax	266(3)
Late return interest	1% x A x T (months)	423(1)
Advance tax interest	1% per month or part, from 1 April after the tax year	424(1)
Advance tax threshold	Less than 90% of assessed tax	424(1)(b)
Non-payment	Assessee in default	266(8)

Common mistakes

1. Paying only the tax and leaving out interest. Section 266(1)(a) requires interest and fee as well. A payment short of the total is adjusted fee first, then interest, then tax, so tax can remain unpaid.
2. Forgetting credits. TDS/TCS, foreign tax relief and the other items in section 266(2) reduce the amount payable. Check that the credit matches your tax statement before paying.
3. Treating the 90% test as the whole story. The 90% test in section 424(1)(b) is on assessed tax, which is after TDS/TCS on income subject to deduction, not on the gross tax.
4. Counting section 424 months wrongly. Section 424 counts every month or part of a month from 1 April following the tax year, so a payment on the 2nd of a month still counts that month.
5. Filing before paying. The return has to carry proof of payment, so pay first, then file.

Where this is in the Act

• Section 266: self-assessment (including 266(1) payment before return, 266(3) order of adjustment, 266(4) to (6) base for interest, 266(8) default)
• Section 423: interest for defaults in furnishing the return of income
• Section 424: interest for defaults in payment of advance tax
• Section 263(1)(c): due dates for the return
• Section 391: direct payment of tax where it has not been deducted

For a CA firm, the hard part is tracking which clients still owe tax before filing and which have credits that do not match. Finexo's practice management software helps you keep that list and the filing deadlines across your client book. It does not calculate tax or pay it on a client's behalf.

This article is general information, not tax advice. Check the current Act and Rules or consult a chartered accountant for your own case.