Section 206AA - PAN for TDS

As per Section 206AA of IT Act, the furnishing of

PAN becomes mandatory for every taxable income and this is applicable for both residents and non-resident Indians. The applicable payments which require PAN are rent, salary, dividends, commission, etc. The TDS will be charged at a higher rate if the PAN is not furnished. The PAN details are expected to quote in the correspondence by both deductee and deductor.

IT Act Section 206AA

The applicability of Section 206AA is amended in the Finance Act 2019 FY 2019-20 and the exact text can be referred below:

"The amendment It is proposed to insert a proviso in sub-section (1) of the said section so as to provide that where the tax is required to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words “twenty per cent.”, the words “five per cent.” had been substituted." Hence, the higher level of tax will be applicable as per below:

TDS rate as prescribed in the Act
Rate of tax applicable for each category if applicable
20% of the income declared

This amendment will be effective from 1st April 2020.

Section 206AA on Section 197

The taxpayer can opt for a lower deduction or nil deduction of tax during the TDS stage by Section 197. For a limited period, Section 197 is applicable through which a certificate will be issued by the Income Tax Department. Till the Section 206AA was introduced, the reduced or nil deduction of tax was possible with Section 197 but the taxpayer still can submit forms as per Section 197 and will not be valid till the taxpayer furnishes PAN to the Income Tax Department.

Form 15H & 15G

Declaration under Section 197 was possible with two forms namely,

Form 15H & 15G. Form 15H is applicable for the taxpayers who are above 60 years of age and Form 15G is for the taxpayers who are below 60 years of age. With the introduction of Section 206AA, these forms will not be valid if the PAN is not furnished along.

NRIs

On certain conditions, Section 206AA will not be applicable for non-residents on the below payments:

on the interest of long-term bonds under Section 194LC
on the payments of interest, royalties, fees for technical services and any capital asset
when relevant details of NRIs are furnished to the IT as per below:
- Name of the taxpayer, email ID, and personal contact number
- Address of the resident country outside of India
- Tax certificate from the resident country
- Tax Identification Number (TIN) of the deductee in the resident country

The Finance Bill 2020 which had the recent amendments can be accessed below - Refer Page no.87 (lower part of right-column)

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Frequently Asked Questions

Common questions about Section 206AA.

Section 206AA of the Income Tax Act makes it mandatory for every taxpayer to furnish their Permanent Account Number (PAN) for certain types of payments such as rent, salary, dividends, commissions, etc. Failure to provide PAN will result in a higher tax deduction at source (TDS) rate.

Section 206AA applies to both resident and non-resident individuals who receive taxable income in India. It requires them to furnish their PAN details to the deductor (the person or entity deducting tax) for the specified payments.

If the PAN is not provided, the TDS rate will be 20% of the income declared, which is higher than the regular TDS rates prescribed for different categories of income.

Yes, the higher TDS rate can be reduced or avoided by obtaining a certificate from the Income Tax Department under Section 197. However, this certificate will only be valid if the taxpayer furnishes their PAN.

Form 15H and Form 15G, which were earlier used for claiming lower or nil TDS, will not be valid unless the taxpayer furnishes their PAN along with these forms.

Yes, Section 206AA is not applicable to non-residents in certain cases, such as interest on long-term bonds (Section 194LC) and payments of interest, royalties, fees for technical services, and capital gains, provided they furnish specific details to the Income Tax Department.

Non-residents need to provide their name, email ID, personal contact number, address in their resident country, a tax certificate from their resident country, and their Tax Identification Number (TIN) in the resident country.

The recent amendments to Section 206AA, as per the Finance Act 2019, came into effect from April 1, 2020.

For payments covered under Section 194-O (e-commerce transactions), if the PAN is not provided, the TDS rate will be 5% instead of the higher 20% rate applicable to other payments.

The Finance Bill 2020, which includes the recent amendments to Section 206AA, can be found on the IndiaFilings website (Page 87, lower part of the right column).