Everything You Need to Know About Self-Assessment Tax

As a responsible citizen of India, you need to ensure that you pay your income tax on time. Your tax liability can be calculated in a variety of ways. If you are a salaried individual, your tax calculations can be done via two ways: Tax Deducted at Source (TDS) and Self-Assessment Tax (SAT).  

As an employee, most of your tax payments are completed automatically thanks to TDS. However, sometimes you may have additional income that is unrelated to your workplace. In such cases, TDS will not be applied and you will have to calculate and pay the outstanding taxes by yourself. This tax liability that you directly calculate by yourself is known as ‘self-assessment tax’. 

If you’re curious to learn more, here is a simple guide on the basics of self-assessment tax. Read to learn how you can calculate, pay, and manage your taxes by yourself!   

What is Self-Assessment Tax? 

Your Income Tax Return (ITR) filings are not considered complete until you pay off your entire tax liability for the financial year. Invalid tax return submissions can lead to high interest charges on the unpaid tax amount and additional penalties. 

When you file taxes, the TDS and advance taxes you paid throughout the year will be deducted from your final tax bill. And if the amount you paid is insufficient, you would have to pay the remaining balance by yourself to make up for the difference. This additional tax is known as the self-assessment tax. It should be paid at the end of financial year, but before filing the income tax return.  

Why is Self-Assessment Tax So Important? 

Firstly, it is crucial for adhering to the tax regulations in India. And as we know, underpaying or not paying taxes on time can result in fines, interest accumulation, and legal repercussions.

As per section 234A, interest is levied for delay in filing the tax return of income. According to regulations, about 1% interest per month is charged on unpaid taxes.

Furthermore, self-assessment tax helps correct any discrepancies or underpayments that may have occurred during the financial year.

When Should You Pay Self-Assessment Tax?

Self-assessment tax should be paid when your total tax liability exceeds the tax already paid through Tax Deducted at Source (TDS) and Advance Tax. This typically occurs after you've calculated your total income for the financial year and assessed your due taxes.

Calculation of Self-Assessment Tax

Here is how you can evaluate the amount of your self-assessment tax:

Estimate Your Annual Income

Calculate your total income from all sources for the financial year, including salary, interest, rental income, and other earnings.

Subtract Deductions

Remove deductions and exemptions under applicable sections (like 80C and 80D) to reduce your taxable income.

Calculate Tax Liability

Use the applicable tax slab rates on your taxable income to determine the total tax due.

Subtract TDS and Advance Tax

Deduct any TDS and advance tax already paid from your total tax liability.

Pay Self-Assessment Tax

If there is tax liability left after deductions, the balance should be paid as self-assessment tax.

How Do You Pay Self-Assessment Tax?

You can pay SAT online via the official income tax e-filing portal or offline at various authorised bank branches using Challan 280.

To make online payments, you need to log into the e-filing portal. Here's a step-by-step guide for the same:

1. Go to the official income tax e-filing portal (https://incometaxindiaefiling.gov.in/). Log in using your credential. If you are a new user, you'll need to register first.

2. Then find and select e-Pay Tax in the e-File menu. Choose New Payment. This will take you to a section where you can select the type of tax payment. Select (300) Self-Assessment Tax.

3. Enter all the required details, like your PAN, assessment year, etc. Do note that Assessment year is the year following the financial year for which you are paying the tax (for example, for income earned during FY 2023-24, select AY 2024-25).

4. Double-check all the information you've entered. Mistakes here could lead to discrepancies in your tax records.

5. Select your preferred payment method (Net Banking or Debit Card) and your bank from the list of authorised banks.

6. Once you select the payment method, you will be redirected to your bank's payment gateway. Complete the payment process as directed. Ensure that you have sufficient funds in your account for the payment.

7. After the payment is successful, a challan containing the CIN (Challan Identification Number), payment details and bank name will be generated. Save and print this challan for your records.

Remember to check your Form 26AS after a few days to ensure the payment is reflected in your tax credit statement. When filing your Income Tax Return, report this payment under the 'Taxes Paid' section to claim credit for the self-assessment tax paid.

Endnote

When creating your financial plan, make sure that you keep taxation in mind and choose tax efficient investments. The Income Tax Act allows deductions for various investments made by the taxpayer in a particular financial year. This means that you can reduce your overall tax liability with strategic investments. Tax saving instruments should be a vital part of your tax planning, as they can contribute to achieving your financial goals.

Insurance policies are one of the best tax saving instruments to secure your future and enjoy tax benefits. Section 80C of the Income Tax Act allows you to deduct your annual premiums (up to ₹1.5 lacs) from your taxable income.

If you are looking for a life insurance plan, Edelweiss Life Insurance offers different options that can cater to a variety of needs. So, select the ones that work best for you and opt for the best life insurance plan to secure your financial future now.