Requirement to furnish PAN for avoiding higher tax deduction not to apply to non-corporate non-residents and foreign companies subject to certain conditions [Section 206AA]

Effective from: 1st June, 2016

(i) Higher rate of tax deduction in respect of persons who fail to furnish PAN to the person responsible for deducting tax at source:

Under section 206AA, any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax shall be deducted at –

(1) the rate mentioned in the relevant provisions of the Act or

(2) the rate or rates in force or

(3) the rate of 20% whichever is higher.

(ii) Applicability of section 206AA to non-residents and consequent compliance burden:

The provisions of section 206AA also apply to non-residents, on account of which they have to obtain and furnish PAN. Otherwise, higher rate of tax deduction is attracted even if tax on such income is payable at a lower rate on account of applicability special provisions of the Act or the relevant double taxation avoidance agreement.

The benefit of non-applicability of the provisions of section 206AA is currently available only in respect of payment of interest on long-term bonds by an Indian company or a business trust as referred to in section 194LC to noncorporate non-residents or foreign companies.

(iii) Non-applicability of section 206AA to non-residents subject to fulfilment of certain conditions:

For the purpose of reducing the compliance burden, section 206AA has been amended to provide for non-applicability of the requirements contained therein to a non-corporate non-resident or to a foreign company, also in respect of any other payment subject to such conditions as may be prescribed.