TDS rates in case of Specified Person having Inoperative PAN

Applicable TDS rates in case of Specified Person and/ or Person having Inoperative PAN

In the realm of taxation, the linkage between PAN and Aadhaar holds significant weight. This article aims to shed light on the Tax Deducted at Source (TDS) rates applicable to Specified Persons and Persons with an Inoperative PAN.

PAN-Aadhaar Linkage: From 1^st of July, 2023, Tax is to be deducted at higher rate in case of Inoperative PAN (If PAN is not linked to Aadhar it will be treated as Inoperative PAN).

For understanding the applicable TDS rates in case of Specified Person and/ or Person having Inoperative PAN, we have to understand section 139AA, 206AA & 206AB of the Income Tax Act, 1961 and Rule 114AAA of the Income Tax Rules.

Section 139AA and PAN-Aadhaar Linkage:

As per the section 139AA of the Income Tax Act, 1961, Every person who has been allotted PAN as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar number has to link his PAN with Aadhar.

Section 139AA of the Income Tax Act, 1961 read with Income Tax Rule 114AAA, In case of failure to intimate the Aadhaar number, the PAN allotted to the person shall be made inoperative after 30-06-2023.

In case of Inoperative PAN, where tax is deductible under Chapter XVIIB in case of such person, such tax shall be deducted at higher rate, in accordance with provisions of section 206AA (We can conclude that the rate in case of PAN not furnished/ Invalid PAN is applicable to Inoperative PAN).

PAN can be made Operative again after paying the required fee which is currently Rs. 1000.

Section 206AA – Higher TDS Rates for Non-furnishing of PAN:

As per the section 206AA of the Income Tax Act, 1961 which requires the furnishing of PAN by the deductee to the duductor in case tax is to be deducted at source and in case the deductee fails to furnish his PAN then the tax is to be deducted at the higher of the following rates:

• at the rate specified in the relevant provision of this Act or
• at the rate or rates in force; or
• at the rate of twenty per cent:

But highest rate at which tax is to be deducted u/s 194-O and 194Q as per section 206AA of the Income Tax Act, 1961 is capped at 5%.

Where the PAN Number 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 tax is to be deducted at higher rate.

Section 206AB – Higher TDS Rates for Specified Persons:

Section 206AB of the Income Tax Act, 1961 which takes effect from the 1st day of July 2021. These sections mandate tax deduction or tax collection at a higher rate in the case of certain non-filers (specified persons).

As per Section 206AB of the Income Tax Act, 1961, where tax is to be deducted at source under the  provisions of Chapter XVIIB, other than section than section 192, 192A, 194B, 194BA, 194BB, 194-IA, 194-IB, 194LBC, 194M or 194N on any sum or income or amount paid, or payable or credited, by a person to a specified person, the tax shall be deducted at the higher of the following rates, namely:—

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at twice the rate or rates in force; or

(iii) at the rate of five per cent.

For the purposes of this section “specified person” means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the return of income under sub-section (1) of section 139 has expired and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in the said previous year:

Exceptions under Section 206AB:

Provided that the specified person shall not include-

(i) a non-resident who does not have a permanent establishment in India; or

(ii) a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and is notified by the Central Government in the Official Gazette in this behalf.

Applicable Rates in case Section 206AA & 206AB both are applicable:

If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.

For e.g.,

You can check the Specified Person status and PAN Operative/ Inoperative status from Income Tax Reporting Portal https://report.insight.gov.in/reporting-webapp/portal/homePage