Section 206AA requires TDS deduction at prescribed rates or @ 20% , if deductee does not submit valid PAN. The example below shows how to calculate TDS in such cases
|Taxable Salary for the year||270000|
|Less : Interest on home loan||-20,000|
|Less : Deductions under chapter VIA||-70000|
|B||Tax at Normal Rate||2000|
|Add : Education cess @ 3%||60|
|Total tax at normal rate||2060|
|C||Tax @ 20% u/s 206AA on [A]||36000|
|D||TDS to be deducted||36000|
|Higher of [B] or [C]|
It is apparnet from the above example that
- Total taxable income is to be calculated after allowing deductions under chapter VIA and home loan interest
- Tax is to be calculated at prescribed rate and education cess is to be applied
- Tax u/s 206AA is to be calculated on taxable income . No need to add education cess.
- Tax at normal rate or u/s 206AA, whichever is higher will be considered for TDS purposes
Will penal rate be applied even if taxable income is below Rs. 1.60 Lacs
- If taxable income of employee does not exceed the exemption limit but he has not submitted PAN, should TDS be deducted @ 20% u/s 206AA. ?
- In response to a query, eminent author Dr. V. K. Singhania has opined that, in such a case TDS has to be deducted @ 20%, In case PAN is furnished, the rate will be 0%. Ref –  18 CPT 117
- A contrary view is that the in such case there is no need to deduct TDS.
- However, CBDT may clarify this issue in the annual circular about TDS on salaries. ( Last such circular is Circular 01 /2010 ) .Deducting TDS in such cases will cause undue hardship to employees