Section 266 of the Income-tax Act, 2025 requires an assessee to pay tax together with interest and fee before furnishing the return, with proof of payment. A short payment is adjusted first towards fee, then interest, and only then towards tax.
What section 266 does
Section 266 is self-assessment — the successor to section 140A of the Income-tax Act, 1961. It requires the tax on the return to be paid before the return is furnished, with proof of payment accompanying it.
The provision that costs taxpayers money is sub-section (3). Where the amount paid falls short, it is adjusted first towards the fee, then towards the interest, and only the balance towards tax. A part payment therefore leaves tax outstanding for longer than the taxpayer may expect, and interest keeps running on it.
The section applies not only to a return under section 263, but also to returns required under section 268 (inquiry before assessment), section 280 (reassessment) and section 294 (block assessment).
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 140A(1) | Tax, interest and fee payable before furnishing the return | 266(1) |
| 140A(1), Explanation | Credits to be taken into account | 266(2) |
| 140A(1), proviso | Adjustment order — fee, interest, then tax | 266(3) |
| 140A(1A) | Computation of section 234A interest | 266(4) |
| 140A(1B) | Computation of section 234B interest | 266(5) and 266(6) |
| 140A(3) | Assessee in default | 266 (later sub-sections) |
| 140B | Tax on updated return | 267 |
Section 266 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — pay first, then file
Where tax is payable on the basis of a return required under section 263, 268, 280 or 294, after taking into account the credits in sub-section (2), the assessee shall be liable to pay such tax together with interest and fee payable for any delay in furnishing the return or any default in advance tax, before furnishing the return; and the return shall be accompanied by proof of payment.
Sub-section (2) — what reduces the amount payable
Seven credits: (a) tax already paid under any provision; (b) tax deducted or collected at source; (c) relief under section 157 (arrears relief); (d) relief or deduction under section 159(1) or 160 for foreign tax; (e) relief under section 159(2) for a specified territory; (f) tax credit under sections 206(1)(m) to (p) and 206(2)(e) to (h) — the MAT and AMT credits; and (g) tax or interest payable under section 391(2).
Sub-section (3) — the adjustment order that catches people
Where the amount paid falls short of the aggregate of tax, interest and fee, the payment is adjusted first towards the fee, thereafter towards the interest, and the balance towards the tax. Because interest under sections 423 and 424 runs on unpaid tax, this ordering means a part payment reduces the interest-bearing principal last.
Sub-sections (4) to (6) — how the interest is computed
Interest under section 423 (late filing) is computed on the tax on the total income as declared in the return, reduced by advance tax, TDS and TCS, and the reliefs in clauses (c) to (f). Interest under section 424 (advance tax default) is computed on the assessed tax, or on the shortfall of advance tax against it — and for this purpose assessed tax means the tax on the total income as declared in the return, reduced by the same credits.
What happens if you file without paying
The return is not invalid, but the assessee is treated as being in default for the unpaid amount, and interest continues to run. More practically, a return filed without payment of self-assessment tax is commonly processed under section 270 with a demand, and the shortfall then attracts recovery under Chapter XIX.
Worked example
A taxpayer computes the following for tax year 2026-27 and pays ₹1,50,000 before filing.
| Component | Amount |
|---|---|
| Tax payable on returned income after TDS and advance tax | ₹1,60,000 |
| Interest under sections 423 and 424 | ₹22,000 |
| Late filing fee under section 428 | ₹5,000 |
| Total due under section 266(1) | ₹1,87,000 |
| Amount actually paid | ₹1,50,000 |
| Adjustment under section 266(3) | Order | Amount |
|---|---|---|
| First — fee | 1 | ₹5,000 |
| Then — interest | 2 | ₹22,000 |
| Balance — tax | 3 | ₹1,23,000 |
| Tax still outstanding | ₹37,000 |
Had the payment been applied to tax first, only ₹10,000 of tax would have remained. The statutory ordering leaves ₹37,000 of tax unpaid, and interest under section 424 continues to run on that amount until it is cleared.
Compliance checklist and due dates
- Pay tax, interest and fee in full before furnishing the return, and attach proof of payment.
- Take credit for all seven items in sub-section (2), including MAT or AMT credit under section 206.
- Where a full payment is not possible, remember the fee, interest, tax ordering in sub-section (3) and budget accordingly.
- Compute section 423 interest on the tax on returned income as sub-section (4) requires.
- Note that 'assessed tax' for section 424 purposes here means tax on the declared total income — section 266(6).
- The section applies to returns under sections 268, 280 and 294 as well, not only section 263.
Common mistakes
- Assuming a part payment is applied to tax first. Sub-section (3) applies it to fee and interest first.
- Filing the return before paying, and treating the shortfall as a matter to sort out later.
- Omitting proof of payment, which sub-section (1)(b) requires to accompany the return.
- Forgetting to claim MAT or AMT credit under clause (2)(f).
- Computing section 423 interest on assessed income rather than on the income declared in the return.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.
Related Guides
- Section 267 — tax on an updated return
- Chapter XV — return of income
- Income-tax Act 1961 vs 2025 — master comparison
- Section mapping cheat sheet: 1961 to 2025
Key Facts About Section 266 of Income
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
Which section replaces section 140A?
Section 266 of the Income-tax Act, 2025 — self-assessment.
When must self-assessment tax be paid?
Before furnishing the return, together with interest and fee, with proof of payment accompanying the return — section 266(1).
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Section 266 of Income: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.