Self-assessment

A self-assessment system is a taxation framework in which the responsibility for declaring income, computing tax liability, and paying taxes rests primarily with the taxpayer rather than the tax authorities. The system relies on voluntary compliance and trust, expecting individuals and businesses to submit accurate and complete tax returns. Under this approach, tax authorities function mainly as verifiers, conducting scrutiny assessments, audits, or random checks to confirm that reported income and taxes paid are accurate. If discrepancies arise, authorities may impose penalties, interest, or revised assessments.

Example: In India, under the Income Tax Act, 1961, both individuals and companies operate within the self-assessment framework. For instance, a salaried taxpayer computes their total income, claims deductions (such as under Section 80C), calculates the net tax liability, and pays any remaining tax before filing their Income Tax Return (ITR). Later, the Income Tax Department may verify the return’s accuracy through a scrutiny or reassessment, and if everything is correct, the return is accepted without further action.