What is self assessment tax?
There are three mediums by which an individual pays taxes in India.Advance taxTDSSelf Assessment Tax.Unfortunately for understanding Self Assessment Tax we need to know the others as well.The common rule in taxation is to pay tax on the income earned this year, next year. So following this rule, the tax on the income you earn in the financial year 2016–17 will be paid in the financial year 2017–18.Suppose the financial year 2016–17 was the very first year India imposed income tax on its people ( just assume for once). Then following the above rule India would receive it's taxes in the financial year 2017–18 for the very first time. How do you expect India will meet its expenditure requirements in the financial year 2016–17?. To solve this problem Govt. of India devised the concept of ADVANCE TAX and TDS.Advance tax is the tax paid on the income earned in a particular year in the same year itself. Here an individual ESTIMATES his/her income for the year, calculates the tax to be paid on the ESTIMATED income and pays such tax on or before the prescribed dates in the same year itself .TDS stands for Tax Deducted at Source. There are some incomes prescribed in the Income Tax Act, 1961 where the payer of such income deducts the applicable rate of tax before making the payment to the payee. The payer then deposits the tax so collected with the Government on or before the prescribed dates.These two ensure that the Govt. functions properly in financial year 2016–17(as per our earlier example).After Financial Year 2016–17 ends, we calculate our ACTUAL income earned for that financial year. Then we calculate the ACTUAL amount of tax to be paid on such ACTUAL income. This is the tax we have to pay for the whole Financial Year 2016–17. But we have already paid ADVANCE TAX and TDS. So we will get credit( or deduction) for those two taxes paid earlier and have to pay the balance tax payable. This balance tax payable is known as SELF-ASSESSMENT TAX.Note that if the total of Advance Tax and TDS exceeds the actual tax payable, no self assessment tax shall be paid and you will be entitled to a INCOME TAX REFUND.Hope it helps.