Section 206AA of Income Tax Act

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. 

What is 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.

Rate of TDS

Someone who fails to furnish the PAN to the person who makes the payment would suffer TDS at higher rates and are mentioned below:

  • At rates that are specified in the relevant provision of the Act.
  • At the rate that is at force.
  • At the rate of 20%.

TDS Rates with Form 15H and 15G

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 identical result will occur if the payee's PAN is invalid or does not belong to him or her. In this case, the tax would be deducted in accordance with Section 206AA rates.
  • Since June 1, 2016, non-residents and foreign corporations have been exempt from the provisions of Section 206AA of the Income Tax Act. Under Section 194LC, it wouldn't apply to interest payments on long-term bonds.
  • The regulations under Section 206AA for royalties, interest, capital transfers, and fees for technical services provided to non-residents were also loosened by the Finance Act of 2016. Foreign corporations and non-resident individuals are exempt from the PAN requirement under Rule 37BC if they disclose their names, contact information, complete addresses, tax identity numbers, etc.

Section 206AA for NRIs

The following payments made by non-residents will not be subject to Section 206AA under certain circumstances:

  • On the payments of interest, royalties, fees for technical services, and any capital asset, as well as on the interest of long-term bonds under Section 194LC. When the IT is given the necessary NRI information, as shown below:
  • Name, mobile number, and the mail address of the taxpayer
  • Country of residence outside of India, with address
  • Tax Identification Number (TIN) of the deductee in the resident country Tax Certificate from the Resident Country
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