Transactions and payments that are made between taxpayers involve the deduction of TDS at the prescribed rate under varied sections. Each section involving TDS rates also prescribes the threshold limit and conditions. The most critical condition prescribed by the Income Tax Act is to quote the PAN to the payer.
It also means that the TDS deduction would not be reflected in the name of the payee and Form 26AS. TDS without PAN, the payee, created an inconvenience for the payee, payer, and the Income tax department. This is the cause of the introduction of Section 206AA of the Income Tax Act.
A taxpayer who has been entitled to get any sum known to be eligible for the TDS needs to quote the PAN to the taxpayer responsible for paying such a sum of income. The failure of the PAN quotation would result in the TDS deduction at a higher rate. Section 206AA is valid for the resident taxpayers and also the NRI taxpayers.
Someone who fails to furnish the PAN to the person who makes the payment would suffer TDS at higher rates and are mentioned below:
The recipient is also compelled to submit the declaration according to Section 197A to the payer. This declaration is made under Form 15H and Form 15G for nil deduction of the payment.
While the former is submitted by a person less than the age of 60, the latter will be submitted by the recipient who is above 60.
|
Applicability of Section 206AA |
Non-Applicability of Section 206AA |
|
A recipient of payment subject to TDS may submit an application for a smaller or nonexistent TDS deduction under Section 197 of the IT Act. In certain circumstances, the AO (Assessing Officer) for that person will issue a certificate for TDS deduction at the designated rates for the predetermined time period. Such certificates will, however, become invalid if your PAN is not provided at the time of application. These certificates may also lose their validity if the PAN is entered incorrectly. The benefits of a lower or zero deduction will not apply in this situation, and the TDS rates will be based on Section 206AA. In order to request a tax deduction that is zero, you can also submit a declaration to your payer under Section 197A. Form 15G can be used by recipients under 60 to make declarations, whereas Form 15H can be used by recipients over 60. If your PAN is missing, this declaration will be void, and TDS will be withheld at higher rates. |
Cases in which the provisions of Section 206AA do not apply include the following:
|
The following payments made by non-residents will not be subject to Section 206AA under certain circumstances: