• Knowledge Hub :

Know Income Tax

48. TDS to be charged at 30% if No PAN from Party

After making minimum valid PANs limit in TDS returns, it has been long time requirement of deductor to get a statutory way to collect the PAN from parties. Deductors were hearing from department officials, "Get the PAN before making the payment & TDS to the party." Still there was no much simplification of process with it.
Now department is planning to bring in strict policy on the same. It is about to come with an amendment in the Act, where TDS will be deducted at a flat rate of 30%, if party is not providing PAN before "Tax Deducted Date". This is suppose to be applied, Irrespective of whatever the nature of payment [Except Salaries].

A detailed press article on the same has been provided here for your reference.

Press article on 21 July 2008 | Higher TDS if Pan not disclosed

THE MOVE IS AIMED AT INCREASING THE EFFECTIVENESS OF TDS PROVISIONS TO EXPAND THE TAX PAYER BASE AND IMPROVE COLLECTIONS.

Companies and individual  who do not reveal their permanent account number (PAN) While receiving income from any source will be liable to pay tax deducted at source (TDS) at the maximum marginal rate of 30 per cent (plus surcharge and education cess).

Under the Income Tax Act, 1961, any income payable to the assessee is liable for TDS By the person or entity making the payment. TDS rate ranges from 1 per cent to 30 per cent depending on the nature of income.

The central Board of Direct Taxes is considering changes to the Act to this effect.  For example, if a payment is made to a professional like an engineer or a doctor, TDS is deducted at a rate of 10 percent. If the engineer or doctor fails to provide PAN number, tax will be deducted at the rate 30 percent. Similarly, if a contractor does not provide PAN, he will suffer a TDS at the higher rate of 30 per cent in-stead of 2 per cent now.

“ In many situations, contractors or sub –contractors pay the normal TDS but still do not file return of income. By taxing at maximum marginal rate, they will be induced to disclose PAN and file tax return also,” said Amitabh Singh, partner, Ernst Young.

The move is being viewed as an effort by the government to expand the tax payer base and ramp up revenue collections in view of the huge resource requirement to fund subsidies.

Many assesses do not reveal their pan to evade taxes and get away with the normal TDS payment. Due to lack of PAN, taxes were often pocketed by deductors also. This creates difficulty in processing tax refunds as well.

PAN quoting has been made mandatory in the e-TDS returns being filed by firms and companies from last year. The tax deductors were facing some difficulty due to reluctant of assesses to PAN. The higher TDS rate will force the assessees to reveal the number near 100 per cent PAN quoting in TDS returns is important for moving towards dematerialization of TDS certificates by 2010. the revised deadline set in Budget 2008.

The move is aimed at in creasing the effectiveness of TDS provisions to expand the tax payer base and improve collections. TDS collections constituted 34 per cent of the total Rs 3,14,000 crore direct tax collected 2007-08. TDS collections are expected to grow by 55 per cent to Rs. 1,65,385 crore in 2008-09, or 45 per cent of the Budget estimate of Rs 3,65,000 crore for 2008-09.