Higher Rate 20% on TDS Deduction

By | December 7, 2015

Section 260AA of the Income Tax Act, 1961- Reads to Deduct TDS at Higher Rate

Bare Act of Section 260AA

When Excess TDS is deducted

There may be situations when your company deducts excess TDS on your salary – when you fail to submit your 80C investment proofs on time or when rent receipts were not submitted by you to save tax on HRA. Or as a freelancer TDS has been deducted at a higher rate whereas you realize you fall in a lower bracket when you round up the year. Excess TDS may have been deducted from you income.

To avoid excess TDS deduction – always plan your taxes in advance. If required obtain a certificate from your Assessing Officer for lower tax deduction. For lower or no TDS on interest payment from banks provide Form 15G and 15H to the bank, as applicable. Plan your tax wisely – and invest in 80C deductions timely.

Higher Rate 20% on TDS Deduction if Deductee have not PAN

If the assessee or Salaried Employee did’t have PAN, then the deductions of TDS by the Deductor, how to deduct TDS from Assessee or Salaried Employee. In this matter the Income Tax Department pass new section 260AA of Income Tax, the TDS Deductions Rate is 20% from assessee or Salaried Employee. The section 260AA of Income Tax Act provides to deduct TDS at higher end, 20% from TDS Deductee.

But what’s in the case when the deductee has the income below the exemption limit under income tax. If the dedcutee has not PAN number and has the income below exemption limit of income tax, will the tax be deducted at higher level?

  • If the assessee furnished form 15G or 15H for the declaration that his income is below the exemption level, He needs to attach a photocopy of PAN.
  • Does having a PAN number is must in india that without that card one can’t have a fixed deposit in banks.
  • What income tax rules say about PAN number? Is it necessary for every individual either having any income or not.

Income tax section 139A provides that it is not necessary to have PAN card for the people whose income is below the exemption level. In this regard Karnataka High court gives the decision that TDS can’t be deducted at higher level on the person who have not PAN number and having income below the exemption level. Honourable High court adds some points which are as under.

  • Section 206AA makes it conditional for every person who wishes to have a transaction in bank/FIs including small investors/depositors (i.e., investors/depositors with income below taxable limit) to invariably have a PAN. This runs counter to section 139A according to which such persons need not have a PAN.
  • Section 206AA hinders and discourages such small investors from coming forward to invest their money for secured reasons and their secured future. This is also not desirable for country’s economy.
  • Further section 206AA is unreasonable as it invalidates Form 15G which does not mention PAN.
  • Section 206AA which overrides section 139A is discriminatory against small investors . Section 139A has withstood scrutiny of Article 14 of the Constitution for reasonableness.


S. 206AA:- Requirement to furnish Permanent Account Number

(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number 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:—
(i) at the rate specified in the relevant provision of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of twenty per cent.

(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.

(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).

(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.

(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.

(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.


Though we deduct TDS @ 20% as per Section 260AA, As per Income Tax, we need to Provide TDS Certificate to Deductor.

For Giving TDS certificate, We need To file ‘e-tds retrun’, For which We need PAN.

Though We deduct 20% TDS for any person who does not have PAN, We cannot issue TDS Certicate for Such Person who does not have PAN.

He has to apply for PAN for getting Certificate.

Hence it is always advised to First ask the Deductee to Apply PAN & To Ensure that PAN is ready at the time of Deduction Itself

Leave a Reply