What is Self Assessment Tax?

Self assessment tax is the balance tax calculated and paid after deducting the TDS and advance tax paid in the financial year. For a more straightforward understanding, if during the assessment year, it is found that an assessee (a person liable to pay tax) has additional tax liabilities after factoring in the TDS and advance tax paid in the preceding year, they need to pay SAT to the government.

The return filing will not be considered complete without processing the self assessment tax.

Unlike the due date for tax payment, there is no specific date to pay self assessment tax. SAT can be conveniently paid by filing a self-assessment tax challan ITNS 280 online or at a particular bank branch. You only need an active net banking account to complete the filing and payment online.

While there is no deadline to pay self assessment tax, ensure that you make the payment before filing income tax returns for the financial year, or interest will be charged on the tax.

Now that the self assessment tax meaning is clearer, you may wonder why the need to pay SAT arises in the first place. Considering ITR filings are done meticulously, and experts also do the tax calculation, how does this balance tax amount show up after the financial year?

Here are some reasons that may lead to the self assessment tax amount:

• The taxpayer may have omitted some income while paying the advance tax
• You might have received unexpected windfall gains or income from other sources
• The TDS amount deducted may be incorrect.
• As an employee, you may have earned a significant amount of returns from fixed deposits and mutual funds that the employer may be unaware of.

Therefore, to keep the inaccuracies in tax payment at bay, the income tax self assessment tax payment is necessary.

All companies that have more than 10 employees are covered under the rules mentioned in the Gratuity Payment Act, 1972. Additionally, all employees working in mines, shops, factories, ports, railways, plantations, or any other organization with 10 or more workers are also liable to receive a gratuity in salary. If the employee fulfils the employment requirements and has been part of the company’s payroll for 5 years or longer, gratuity payment has to be made by the employer irrespective of the employee’s profession.

The basic requirement for gratuity in salary eligibility is that the employee should have rendered continuous service of a minimum of five years to a single organization. Apart from this basic criteria, here are some other rules that are applicable as part of the eligibility criteria for receiving gratuity in India:

The gratuity calculation formula as prescribed by the Gratuity Payment Act, 1972 differs based on the type of employment. The Act classifies employees eligible for gratuity payments into two distinct categories:

• Employees covered under the Gratuity Act, and
• Employees not covered under the Gratuity Act.

The below section discusses the calculation formula for gratuity in both cases:

Ravi’s gratuity payment = N x B x (15/26) = 5*80000*15/26 = ₹2.32 lakh



In the above case, 5 years 3 months has been rounded off to the nearest whole year i.e. 5 years.

Example 2:

Mr. Sachin has worked for XYZ organization not covered under the Act for 9 years 10 months. His basic salary for a month was ₹90,000 as per last drawn salary. What will be his gratuity in salary amount?

Gratuity (G) of Mr Sachin = N x B x (15/30) = 10 x 90000 x (15/30) =₹4.5 lakh

In the above case, the 9 year 10 months service period has been rounded to nearest whole year i.e. 10 years for the purpose of the gratuity calculation.

Gratuity in salary is exempt from tax in many cases as long as you have submitted Income Tax Form 10E to submitting your Income Tax Return. There is also an upper monetary limit of Rs. 20 lakh up to which gratuity payments are exempt from tax. So if an employee receives gratuity in excess of ₹20 lakh during his/her lifetime, the incremental amount will be taxable as per the slab rate for the applicable financial year.

Let's have a detailed understanding of conditions in which tax is not levied on gratuity payments:

• 1. The gratuity amount is received by central and state employees, defense forces employees, and municipality employees
• 2. Any gratuity amount under the maximum limit of ₹20 lakh is disbursed tax-free.

Conditions in which tax applies to payments are:

• 1. The cumulative gratuity amount received during the employees’ lifetime exceeds ₹20 lakh. Tax will be applicable only on the amount exceeding the ₹20 lakh limit.
• 2. The gratuity amount is received by the nominee in the case of the employee's death. In this case, gratuity is taxed under the head Income from Other Sources .