TDS TO BE 20% IF PAN OR AADHAAR DETAILS ARE NOT FURNISHED
TDS CALCULATION BASED ON NEW GUIDELINES
Employers might soon start deducting 20 per cent from the salaries of their staff if they fail to provide their PAN or Aadhaar number to them. This is a new rule brought in by the Central Board of Direct Taxes, which will be applicable to employees whose salary is above the threshold of ~2.5 lakh a year. This norm, which has come into effect on January 16, aims to monitor TDS payments and keep a strict vigil on revenue earned from this segment, which constitutes 37 per cent of the total direct tax collection of the country during financial year 2018-19.
Employers might soon start deducting 20 per cent from the salaries of their staff if they fail to provide their Permanent Account Number (PAN) or Aadhaar number to them. This is a new rule brought in by the Central Board of Direct Taxes (CBDT), which will be applicable to employees whose salary is above the threshold of ~2.5 lakh a year.
This norm, which has come to effect on January 16, aims to monitor tax deduction at source (TDS) payments and keep a strict vigil on revenue earned from this segment, which constitutes 37 per cent of the total direct tax collection of the country during financial year 2018-19 (FY19).
In an 86-page circular on the matter, CBDT directed mandatory quoting of PAN or Aadhar number by employees under Section 206 AA of the Income Tax Act.
“Section 206AA in the Act makes furnishing of PAN or
Aadhaar number, as the case may be, by the employee compulsory in case of receipt of any sum or income or amount, on which tax is deductible,” said the circular.
If an employee fails to furnish the details, the employer has been made responsible to make deduction either at the tax rate attracted by the employee’s salary or 20 per cent or more, the circular noted. If the income of the employee is below the taxable limit, no tax will be deducted.
If after various deductions the salary attracts up to 20 per cent tax, TDS at the rate of 20 per cent will apply. If it attracts 30 per cent tax rate, the employer will calculate the average tax rate, which is the employee’s total tax liability divided by total annual income. In case average tax rate comes up to 20 per cent, the TDS will be 20 per cent. In other cases, higher TDS at the average tax rate will apply.
However, an employee will be exempted from paying health and education cess at the rate of 4 per cent if the deduction is made at a higher rate.
The CBDT said that as the requirement of filing TDS certificates along with the tax return has been done away with, the lack of PAN or Aadhaar number is creating difficulties in giving credit for the tax deducted. Therefore, tax deductors are advised to procure and quote correct PAN or Aadhaar number, details of all deductees in the TDS statements for salaries in Form 24Q (for tax deducted from salaries).