Requirement to Furnish PAN for TDS
Introduction
Any person receiving income subject to tax deduction at source (TDS) must furnish his Permanent Account Number (PAN) to the deductor. Failure to provide PAN results in higher TDS rates.
TDS Deduction Rates When PAN Is Not Furnished
- General Rule (Section 206AA): TDS is deducted at the highest of the following:
o Rate specified under the relevant provision of the Income-tax Act.
o Rate in force.
o 20%.
- E-commerce Participants (Section 194-O): Higher of specified rate, rate in force, or 5%.
- Buyers deducting TDS (Section 194Q): Higher of specified rate, rate in force, or 5%.
Exemptions for Non-Residents from PAN Requirement
Non-residents are not required to furnish PAN for TDS on:
- Interest on long-term bonds (Section 194LC).
- Interest, royalty, FTS, dividends, or capital asset transfers (Rule 37BC), subject to the furnishing of specified information.
- Income from Alternative Investment Funds (AIFs) in IFSCs (Rule 114AAB), subject to the fulfilment of specified conditions.
- Securities transactions underSection 47(viiab)in IFSCs, subject to the fulfilment of specified conditions.
Use of Aadhaar Instead of PAN
- Individuals can furnish Aadhaar in place of PAN underSection 139A(5E).
- If Aadhaar is provided instead of PAN, higher TDS underSection 206AAshould not apply.
Consequences of an Inoperative PAN
From 1st July 2023, if PAN is not linked with Aadhaar, it becomes inoperative, leading to:
- Higher TDS rates subject to certain exceptions. [Circular No. 06/2024, dated 23-04-2024, Circular No. 08/2024, dated 05-08-2024, and Circular No. 09/2025, dated 21-07-2025]
- Inability to obtain nil or lower TDS certificates or file nil TDS declaration.
- No eligibility for tax refunds.
- No interest on refunds for non-operative period.