The Finance Act, 2009 introduced new provisions (section 206AA) in the Income-tax Act, 1961 (the Act). As per these provisions any person entitled to receive any sum on which tax is deductible under the Act shall furnish its Permanent Account Number (PAN) to the deductor. In case of failure in providing PAN to the deductor, the deductor is required to withhold taxes at higher of the following rates:

  • Rates provided under relevant provisions of the Act or
  • Rate or rates in force (i.e. rate provided under the Act or the tax treaty)
  • Rate of 20 percent

The above provisions relating withholding of taxes at a higher rate under the Act will become applicable with effect from 1 April 2010.

Recently, the Ministry of Finance, issued a press release  dated 20 January 2010 relating to applicability of the provisions (section 206AA) of the Act with effect from 1 April 2010.

The above provision will be applicable to all payments made to residents / non-residents on which tax is required to be deducted under the Act. Further, the certificate for deduction at lower rate or nil rate of deduction under section 197 or under section 197A  shall not be given by the Assessing Officer (AO) unless the application bears PAN of the applicant / deductee.

In order that there is no dispute regarding quoting / non-quoting of PAN or accuracy thereof, the law requires all deductees and deductors to quote PAN of deductees in all correspondences, bills, vouchers and other documents sent to each other.

Therefore, all deductors are advised to intimate their deductees to obtain and furnish their PAN so as to avoid withholding at a higher rate. Further, all the deductees including non-residents having transactions that are liable to tax deduction in India, are advised to obtain PAN by 31 March 2010 and communicate the same to their deductors before tax is actually deducted on transactions after that date.

The procedure for obtaining PAN is simple, inexpensive and quick. Application for PAN can be filed in Form 49A to National Securities Depository Ltd. or Unit Trust of India Investor Services Ltd. or their intermediaries. Non-residents can apply through the local embassy / consulate of India.

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  1. Vijay Kumar says:

    Income Tax Department is funny, to say the least. I went to my bank to furnish PAN for my savings account interest TDS, and I was told that there is no TDS on savings bank account interest, only on interest on FDRs and TDRs!
    IS the Finance Minister listening?
    (Name of the bank is withheld, just in case it is the only such bank, but it is a large PSU bank).

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