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.
Higher rate of withholding tax applies if PAN is not furnished
– 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.