Introduction
Every payment that is subject to tax deduction at source requirements must be made following a tax deduction. The TDS provisions require that all payers withhold taxes at the rates laid out in the applicable parts of the Income Tax Act.
The recipient must always provide their PAN to the person making the payment. There are, however, some situations where the recipient would not have a PAN. In these situations, the payer must abide by the rules of Section 206AA and withhold tax from the recipient at a higher rate. Below, we go over the reach and effects of Section 206AA:
Rate of TDS
The following are some of the consequences of not providing the PAN to the payer, which will result in greater TDS:
- At the rates outlined in the applicable Act
- At the force-bearing
- At a 20% annual
- Rates for TDS on Forms 15G and 15H
- The declaration required by Section 197A must likewise be provided by the beneficiary to the
- In contrast to the latter, which will be submitted by the recipient who is over 60, the former is submitted by someone under
Failure to Apply Section 206AA
Two different types of transactions are not covered under Section 206AA of the Income Tax Act of 1961. To start, it does not apply to payments of interest income made to non-resident taxpayers on long-term bonds protected under section 194LC.
Additionally, any payment in the form of interest, royalties, technical service fees, or payments on the transfer of any capital asset is not covered by it. Such payments are made to
non-resident corporations or foreign businesses without PANs. However, the payee taxpayer is required to give the payer the following details. The payer must receive the payee’s name, phone number, and email address.
For NRIs, see Section 206AA
Under certain conditions, the following payments made by non-residents will not be covered by Section 206AA:
On the distribution of any capital asset, royalties, technical service fees, interest on long-term bonds issued under Section 194LC, and payments of any interest. When the required NRI data is provided to IT, as illustrated below:
Name, contact information (including email and phone number) and the country of residence (including address) of the taxpayer. Tax Identification Number (TIN) of the deductee in the resident country. Tax Certificate from the Resident Country.
Final Remark
While interest on FCNR and NRE savings accounts is tax-free, interest on NRO balances is taxable and subject to a 30% TDS. NRIs with income in India must be aware of the Section 206AA requirements and provide the necessary documentation up front to avoid having tax withheld at higher rates at the source.