tds_rate_in_case_inopertive_pan


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APPLICABLE TDS RATES IN CASE OF PERSON HAVING INOPERATIVE PAN

PAN-Aadhaar Linkage : The linking of PAN and Aadhaar has a significant impact on taxation. This article aims to elucidate the implications of Tax Deducted at Source (TDS) rates for Specified Persons and individuals with an Inoperative PAN. An Inoperative PAN refers to a PAN that is not linked to Aadhaar.

CBDT issued Circular No. 03 of 2023 dated 28.03.2023, notifying that from 1st of July, 2023, Tax is to be deducted at higher rate in case of Inoperative PAN. As per the circular, for persons who failed to comply with provision of section 139AA of the Income-tax Act, 1961 ('the Act') (Quoting of Aadhar Number), TDS has to be deducted as per provisions laid down in section 206AA (Requirement to furnish PAN) of the Act read with rule 114AAA of the Income Tax Rules, 1962 (Manner of making PAN inoperative). For a clear understanding the provisions of these sections are discussed below.

Section 139AA - As per the section 139AA of the Act, 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 Aadhaar.

Section 139AA, r.w Income Tax Rule 114AAA, specifies that failure to link the Aadhaar number by June 30, 2023, will render the PAN inoperative. CBDT circular 03/2023 requires deduction of TDS at rates specified in 206AA.

However it may be noted : PAN can be made Operative again after linking of PAN and Aadhaar along with paying the required fee which is currently Rs. 1000.

Section 206AA r.w.r 114AAA - By making a reference to section 206AA, it seems the CBDT intends to put persons with inoperative PAN on the same footing with persons not furnishing their PAN. In accordance with provisions of section 206AA, in case of Inoperative PAN, tax is deductible under Chapter XVIIB at higher of the following rates-

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

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

Significance of above provisions for Tax Deductors: Deducting TDS at the standard rate for an inoperative PAN can lead to inviting notice from TRACES for the shortfall in TDS deduction. Therefore, the role of a tax deductor in verifying the operational status of every PAN is crucial. Hence, it's imperative for tax deductors to ensure the active status of the PANs they are dealing with.

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