Section 266 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 266 requires an assessee to pay the tax, interest and fee that remain due on the basis of the return before furnishing the return, and to attach proof of payment. It also says how a short payment is adjusted, how interest is worked out and what happens if the amount is not paid. This article explains the section as per the Income-tax Act, 2025 as amended by the Finance Act, 2026. Later amendments, the Income-tax Rules, 2026 and notifications should be checked separately.
Where tax is payable on the basis of a return under section 263, 268 or 280 or 294, after taking into account the credits in sub-section (2), the assessee must pay that tax with interest and fee before furnishing the return, and the return must carry proof of payment. A short payment is adjusted first to fee, then to interest, then to tax (sub-section (3)). Unpaid amounts make the assessee an assessee in default (sub-section (8)).
Section 266(1): pay first, then file
Sub-section (1) applies where, after taking into account the amounts in sub-section (2), any tax is payable on the basis of a return required to be furnished under section 263 or 268 or 280 or 294. Two duties follow.
- Clause (a): the assessee is liable to pay the tax together with the interest and fee payable under any provision of the Act for delay in furnishing the return, or for default or delay in payment of advance tax, before furnishing the return.
- Clause (b): the return must be accompanied by proof of payment of the tax, interest and fee.
For the return provisions, see our notes on section 263 and on belated, revised and updated returns. For filing the return itself, our income tax return filing service can help.
Section 266(2): what is deducted before the tax is found payable
| Clause | Amount taken into account |
|---|---|
| (a) | Tax, if any, already paid under any provision of the Act |
| (b) | Tax deducted or collected at source |
| (c) | Relief of tax claimed under section 157 |
| (d) | Relief of tax or deduction of tax claimed under section 159(1) or 160 on account of tax paid in a country outside India |
| (e) | Relief of tax claimed under section 159(2) on account of tax paid in a specified territory outside India |
| (f) | Tax credit claimed to be set off as per section 206(2)(e) to (h) and 206(3) and (4) |
| (g) | Tax or interest payable according to section 391(2) |
Clause (f) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026; the footnote prints that the earlier clause referred to section 206(1)(m) to (p) and 206(2)(e) to (h). The relief provisions are explained in our notes on section 157 and section 159, and the credits in section 206.
Section 266(3): the order of adjustment
If the amount paid under sub-section (1) falls short of the total of tax, interest and fee payable, the amount paid is adjusted first towards the fee, then towards the interest, and the balance, if any, towards the tax. The order matters because tax left unpaid keeps the assessee exposed to the consequences in sub-section (8).
A worked example
All figures are assumed. Kavita Traders, a partnership firm, calculates tax of Rs. 30,000, interest of Rs. 2,000 and fee of Rs. 5,000 payable before furnishing its return. It pays only Rs. 20,000.
- Fee: Rs. 5,000 is adjusted first, leaving Rs. 15,000.
- Interest: Rs. 2,000 is adjusted next, leaving Rs. 13,000.
- Tax: the balance of Rs. 13,000 goes to tax, so Rs. 17,000 of tax remains unpaid.
Section 266(4) to (6): how interest is measured
| Sub-section | Interest | Measured on |
|---|---|---|
| (4) | Interest under section 423 | Tax on the total income declared in the return, reduced by advance tax paid, tax deducted or collected at source, relief under section 157, relief or deduction under section 159(1) or 160, relief under section 159(2), and the tax credit under section 206(2)(e) to (h) and 206(3) and (4) |
| (5) | Interest under section 424 | The assessed tax, or the amount by which advance tax paid falls short of the assessed tax |
Sub-section (6) defines "assessed tax" as the tax on the total income declared in the return, reduced by: (a) tax deducted or collected at source under Chapter XIX-B on income that is subject to such deduction or collection and is taken into account in computing total income; (b) relief under section 157; (c) relief or deduction under section 159(1) or 160 for tax paid outside India; (d) relief under section 159(2); and (e) the tax credit under section 206(2)(e) to (h) and 206(3) and (4). Clause (4)(f) and (6)(e) were also substituted by the Finance Act, 2026, w.e.f. 1-4-2026, in the same way as sub-section (2)(f). Sections 424 and 425 are explained in section 424 and section 425. For planning advance tax, see our advance tax calculation service.
Section 266(7): the link to regular assessment
After a regular assessment under section 270 or 271, or an assessment under section 294, any amount paid under sub-section (1) is deemed to have been paid towards that regular assessment or assessment. Section 270 is explained in our note on processing and assessment. Section 271 is mentioned here only by its number.
Section 266(8) and (9): assessee in default
If an assessee fails to pay the whole or any part of the tax, interest or fee as required by sub-section (1), he is deemed to be an assessee in default in respect of the amount that remains unpaid, and all provisions of the Act apply accordingly. Sub-section (9) says this is without prejudice to any other consequences the assessee may incur. The Act does not state here what those other consequences are; they are found in other provisions, for example the fee provisions in section 428.
Practical reading of the section
- Do the arithmetic of sub-section (2) first; a credit you cannot support is a credit you should not count.
- Pay the whole of tax, interest and fee, not just the tax, because a short payment goes to fee and interest first.
- Keep the proof of payment; the return is to be accompanied by it.
- A return furnished under section 263(6) is the subject of section 267, which has its own payment rules.
Need help with section 266?
Working out the credits, interest and fee before filing is easier with someone who has the figures in front of them. Our income tax return filing team can prepare the computation and the return together.
Key takeaways
- Tax, interest and fee found payable on a return must be paid before the return is furnished, with proof attached.
- A short payment is adjusted to fee, then interest, then tax.
- The tax credit clause now refers to section 206(2)(e) to (h) and 206(3) and (4), substituted w.e.f. 1-4-2026 by the Finance Act, 2026.
- Non-payment makes the assessee an assessee in default.
Read next
- Section 263: return of income, who must file and due dates
- Section 267: tax on an updated return
- Section 270: processing, intimation and assessment
- Section 423: interest for default in furnishing return of income
- Chapter XV of the Income-tax Act, 2025: return of income
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.