Section 206AA has been introduced to endow that any person whose receipts are subject to deduction of tax at source i.e. the deductee, shall essentially furnish his/her PAN to the deductor failing which the deductor shall deduct tax at source at higher of the these rates –
- Applicable rate of TDS or
- At the rate of Twenty Percent
Additional Points Related To Section 206AA
No certificate u/s 197 will be accepted by the Assessing Officer unless the application contains the applicant’s PAN.
Tax is required to be deducted at the rates (as suggested under this section) also in cases where the deductee files a declaration in Form 15G or Form 15H (u/s 197A) but does not provide his/her PAN.
If the PAN provided to the deductor is invalid or it does not belong to the deductee, it shall be understood that the deductee has not furnished his/her PAN to the deductor. Accordingly, tax would be deductible at the higher of the two rates specified above.
Both the deductor and the deductee have to essentially quote the PAN of the deductee in all correspondence, bills, vouchers and other documents exchanged between them.
These provisions will apply to non-residents or foreign company too where tax is deductible on payments made to them. However, this section’s provision will not apply to foreign company or to a non- resident, in respect of—
- Payment of interest on long-term bonds as referred to in section 194LC; and
- Any other payment subject to such conditions as may be stipulated.
Relaxation from deduction of tax at higher u/s 206AA
Accordingly, the CBDT has inserted Rule 37BC to provide that the provisions of section 206AA shall not apply to a non-corporate non-resident, or to a foreign company who do not have PAN in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, if the deductee furnishes the following details and documents to the deductor:
- Name, contact number ,e-mail id,;
- Address in the country or specified territory outside India from which the deductee is a resident;
- A certificate of his/her being resident in any country or specified territory outside India from the Government of that country or specified territory, if the law of that country or specified territory provides for such certificate’s issuance;
- Tax Identification Number (TAN) of the deductee in the country or specified territory of his/her residence. In case if there is no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or specified territory of which he/she claims to be a resident.
Extract of Income Tax Act, 1961- Section 206AA
Mandatory Requirement of Furnishing PAN-TDS
206AA. (1) Inspite of anything contained in any other provisions of this Act, any person entitled to receive any sum of amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his/her PAN to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
- At The Rate Determined In The Relevant Provision Of This Act; Or
- Rates In Force Or At The Rate ; Or
- At The Rate Of 20%
[Provided that where the tax is needed to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words “20%”, the words “5%” had been substituted:]
[Provided further that where the tax is needed to be deducted u/s 194Q, the provisions of clause (iii) shall apply as if for the words “20%”, the words “5%” had been substituted.]
(2) No declaration under section 197A -sub-section (1) or sub-section (1A) or sub-section (1C) will be valid unless the person furnishes such declaration to his/her PAN.
(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source as per the the provisions of sub-section (1).
(4) No certificate u/s 197 shall be accepted unless the application made under that section contains the applicant’s PAN.
(5) The deductee will furnish his/her PAN to the deductor and both will mention the same in all the correspondence, vouchers, bills, and other documents which are sent to each other.
(6) Where the PAN provided to the deductor does not belong to the deductee or is invalid, it shall be deemed that the deductee has not furnished his/her PAN to the deductor and the provisions of sub-section (1) shall apply suchwise.
(7) The provisions of this section will not apply to a non-resident, not being a company, or to a foreign company, in respect of—
- Payment of interest on long-term bonds as referred to in section 194LC; &
- Any other payment subject to such conditions as may be stipulated.