Background:-The Finance (No.2) Act of 2009 introduced section 206AA under the Income Tax Act, 1961 (the ITA) to provide that any person who is entitled to receive any sum or income or amount, on which tax is to be withheld under the ITA shall furnish PAN to the person responsible for withholding of tax. In case PAN is not furnished, minimum withholding tax rate of 20% will have to be applied. This provision is now effective from1 April 2010.
Salient features
Higher rate of withholding tax applies if PAN is not furnished
- Section 206AA overrides all other provisions of the ITA.
- Resident or Non-resident receiving any sum on which tax is to be withheld is required to obtain and furnish PAN to its payer.
- Any default in furnishing of PAN will attract rate of withholding tax which is higher of the following:
– Rates specified in the relevant provisions of the ITA, or
– Rate or rates in force, as specified under the ITA or under the applicable tax treaty, or
– Rate of twenty percent.
No ‘lower or Nil’ withholding certificate without PAN:-Assessing officers will not issue lower or nil rate withholding tax certificates to any payee, if PAN is not quoted in the application.
Correct PAN to be quoted in all communications:- PAN is to be quoted by the payee and payer in each of the correspondences, bills, vouchers and other documents shared between them.
Press Release dated 20January 2010:-In the Press Release issued by Central Board of Direct Taxes, it has been advised that all payers should intimate their payees to obtain and furnish PAN so as to avoid withholding tax at a higher rate.
Way forward
Payee
- To obtain and furnish PAN to the payer, if payments are covered under Section 206AA of the ITA ;
- Obtaining PAN is not a cumbersome process and can be done through filing an application in Form No. 49A with relevant authorities;
- To mention PAN in all correspondences.
Payer
- To intimate all payee to furnish PAN, if payments are covered under Section 206AA of the ITA;
- To withhold tax at 20% or such higher rate as applicable, if PAN is not furnished by payee;
- To mention PAN in all correspondences.
