Effect of non-furnishing of PAN on rate of tax – Section 206AA

Effect of
non-furnishing of PAN on rate of tax
– Section 206AA as inserted with
effect from 1-4-2010 provides as under:

♦ Every person whose receipts are
subject to deduction of tax at source (i.e., the deductee) shall furnish
his PAN to the deductor. It will be compulsory from 1-4-2010.
♦ If such person does not furnish
PAN to the deductor, the deductor will deduct tax at source at higher of
the following rates—
(a) the rate prescribed in
the Act;
(b) at the rate in force, i.e.,
the rate mentioned in the Finance Act; or
(c) at the rate of 20 per
cent.
♦ No certificate under section 197
will be granted by the Assessing Officer unless the application contains the
PAN of the applicant.
♦ It is mandatory for quoting of PAN
of the deductee by both the deductor and the deductee in all correspondence,
bills and vouchers exchanged between them.
♦ Where the PAN provided to the
deductor is invalid or does not belong to the deductee, it shall be deemed that
the deductee has not furnished his PAN to the deductor and above provisions
shall apply accordingly.
In Smt. A. Kowsalya Bai v. Unionof India [2012] 22 taxmann.com 157/208 Taxman 208 (Kar.) it was held that
in view of the specific provision of section 139A, section 206AA is
inapplicable to persons, whose income is less than the taxable limit. However,
it is made clear that, section 206AA would of course be made applicable to
persons whose income is above the taxable limit. Banks and Financial
Institutions cannot ask for Permanent Account Number (PAN) from persons whose
income is below taxable limit.

“4.8.1 Section 206AA in the Act
makes furnishing of PAN by the employee compulsory in case of receipt of any
sum or income or amount, on which tax is deductible. If employee (deductee)
fails to furnish his/her PAN to the deductor, the deductor has been made
responsible to make TDS at higher of the following rates: 


(i) at the rate specified in
the relevant provision of this Act; or(ii) at the rate or rates in
force; or(iii) at the rate of twenty
per cent

The deductor has to determine the
tax amount in all the three conditions and apply the higher rate of TDS. However,
where the income of the employee computed for TDS u/s 192 is below taxable
limit, no tax will be deducted.
But where the income of the employee
computed for TDS u/s 192 is above taxable limit, the deductor will calculate
the average rate of income-tax based on rates in force as provided in section
192. If the tax so calculated is below 20%, deduction of tax will be made at
the rate of 20% and in case the average rate exceeds 20%, tax is to deducted at
the average rate. Education cess @ 2% and Secondary and Higher Education Cess @
1% is not to be deducted, in case the tax is deducted at 20% u/s 206AA of the
Act.”

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