TDS stands for Tax Deducted At Source. TDS provisions are introduced to collect tax at the source from where certain types of incomes such as salary, interest, rent, professional fees etc. are generated.
For instance in case of salary, tax has to be deducted by the employer at the time of paying it to employee. Instead of waiting for the employee to pay tax at the end of the year while filing return of income, government has introduced section 192 to collect it at the time when salary income is generated, that is at the time when employer pay salary to employee.
In this article we will discuss the importance of PAN in TDS and the consequences of invalid or not quoting permanent account number.
No Tax Credit if PAN not furnished to the Deductor
Before knowing how tax credit will not be issued to the deductee PAN, we have to understand the whole process of TDS. In TDS process we have three parties involved;
- Deductor
- Deductee
- IT department
Deductor is the person who is making the payments. It’s the job of the deductor to deduct tax while playing and deposit the same with the IT department on or before the due date.
Deductee is the person who receives payment after deduction of tax such as the contractor, employees, landlords etc.
In our above example, employer is the deductor and employee is the deductee.
It’s the duty of the deductor to deposit the tax with the government and file quarterly TDS Returns.
Based on the TDS Returns, tax that is deducted from payments will automatically get credited to deductee PAN. This will happen when deductor furnish line wise details of payments against PAN of the deductee. This means deductor will assign TDS amount deducted out of deductee payments to his PAN while filing TDS return.
Permanent account number or PAN is a 10 digital alpha numeric number allocated by central government of India to the person who has applied for it.
If you are a deductee, then your entire credit for a financial year can be seen in form 26AS online against the name of the person who has given you credit.
If you as a deductee has not provided your PAN to the deductor, then credit will not be given back to you even though TDS amount has been deducted from your payments.
Rate of TDS in absence of Permanent Account Number
As per the provisions, every deductee shall furnish his PAN to the deductor. As a employee you must furnish your permanent account number to employer.
In absence of permanent account number, the deductor shall deduct tax at the highest rate out of the following;
- 20%
- Rate in force or Rate specified in the act
Highest rates of the above will also be applicable in cases where PAN provided to the deductor is invalid or doesn’t belong to the deductor.
PAN has to be compulsorily quoted in the following forms given for non-deduction of TDS or to deduct at a lower rate;
- 15G or 15H – self declaration for non deduction of tax
- 13 – application for obtaining certificate for lower rate of tax deduction
If you have not quoted PAN in above forms, then TDS amount has to be deducted at the highest rate of tax as mentioned above.
For better compliance, both deductee and deductor has to quote their permanent account number or PAN in all invoices, vouchers and other correspondence so that conflict of TDS will not arise.
