Although in some cases, quoting of PAN for certain type of transaction is must, for most of the transactions quoting of PAN is optional yet it is beneficial to quote PAN in your own interest. When TDS is to be deducted by payer, you should quote your PAN for getting TDS deducted at lower rate. If you do not quote your PAN on transaction that attracts TDS, the rates applicable for deduction will be subject to the provisions of Section 206AA of the Income-Tax Act, 1961. This section provides that where PAN is not quoted, the rate applicable will be highest of the below rates:
- Rate of TDS applicable as per section under which such TDS is to be deducted; or
- At highest rate or rates applicable in force; or
- At the rate of 20%.
So when you do not quote your PAN, TDS will be deducted at the highest rate applicable. For example, the rate of TDS for payment to a company for contracts is 2%. Now, if suppose the company doesn’t provide its PAN, then the rate applicable will be 20%. Therefore, it is always beneficial for the company to quote the PAN so that TDS is deducted at a lower rate.
Likewise, rate of TDS under section 194B for the payment of winning amount on lottery is 30%. So when the party receiving the lottery amount doesn’t quote his/her PAN, the default rate still will be 30%. This is because section 206AA provides higher of the rates applicable or 20%. And in this case rate applicable i.e., 30% is higher than the default rate of 20%. So tax deducted will still be at 30%.
The disadvantage of not quoting PAN is not limited to just deduction of tax at higher rates. Further, TDS certificate can be issued only when PAN is quoted. So if a party doesn’t quote PAN, there will be no issuance of TDS deduction certificate. Hence, the party will not be able to claim benefit of TDS in his/her return. Section 206AA bars issuance of TDS certificate unless PAN is quoted by the party receiving the payment. So, if a party doesn’t quote PAN, the party will not be able to offset the annual tax liability with the amount of TDS already deducted. To claim benefit of TDS on net annual tax liability, the party will have to provide PAN to the deducting party and request them to revise the return with such updated PAN. Further, this section also bars assessee from receiving certificate under 197 that allows them to receive payment with lower rates or without deduction of TDS. So, even if someone claims that he is not subject to deduction of TDS (due to his income being below taxable limits), he/she still will have to quote PAN and obtain certificate under 197 or else TDS will be deducted at the highest rates applicable.