Section 206AA – PAN for TDS

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)

Finance-Bill-2020

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