Your employer can deduct TDS at 20% on taxable income if you don’t furnish PAN or Aadhaar

Health and Education cess at 4% is not to be deducted in case the tax is deducted at 20%

Kumar Shankar Roy Jan 25, 2020

aadhaar PAN linkingNot providing PAN/Aadhaar is no longer a way for employees to escape Tax Deducted at Source (TDS) net.

The Income Tax department has announced that if an employee fails to furnish his/her PAN or Aadhaar number to employer, then TDS can be deducted at 20% as long as income is above the taxable limit depending on employee age.

“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,” a circular says.

If employee (deductee) fails to furnish his/her PAN or Aadhaar number as
the case may be, to the deductor, the deductor (employer) has been made responsible to make TDS at higher of the following rates:
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 20%.

The deductor has to determine the tax amount in all the three conditions and apply the higher rate of TDS, said the circular.

Health and Education cess @ 4% is not to be deducted, in case the tax is deducted at 20% u/s 206AA of the Act.

Every person who is responsible for paying any income chargeable under the head “Salaries” has to deduct income-tax on the estimated income of the assessee under the head “Salaries” for the financial year 2019-20. The income-tax is required to be calculated on the basis of the rates subject to the provisions related to requirement to furnish PAN or Aadhaar number. Tax is deducted at the time of each payment.

No tax, however, will be required to be deducted at source in a case unless the estimated salary income including the value of Act, including the value of perquisites, for the financial year exceeds Rs 2,50,000/- or Rs 3,00,000/- or Rs 5,00,000/- depending upon the age of the employee.

For someone who is aged less than 60 years, total income above Rs 2.5 lakh a year attracts income tax.

For someone who is aged more than 60 years but less than 80 years, total income above Rs 3 lakh a year attracts income tax.

For someone who is aged more than 80 years, total income above Rs 5 lakh a year attracts income tax.

More than one employer?

Section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the tax payer may choose) from the aggregate salary of the employee, who is or has been in receipt of salary from more than one employer.

The employee is now required to furnish to the present/chosen employer details of the income under the head “Salaries” due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer.

The present/chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

TDS on pension income

In the case of pensioners who receive their pension (not being family pension paid to a spouse) from a nationalised bank, the instructions apply in the same manner as they apply to salary-income.

The deductions from the amount of pension under section 80C on account of contribution to Life Insurance, Provident Fund, NSC etc., if the pensioner furnishes the relevant details to the banks, may be allowed.

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Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].