Importance of permanent account number (PAN) in TDS

TDS stands for Tax Deducted At Source. TDS provisions are introduced to collect tax at the source from where certain types of incomes such as salary, interest, rent, professional fees, etc. are generated.

For instance, in case of salary, the tax has to be deducted by the employer at the time of paying it to the employee. Instead of waiting for the employee to pay tax at the end of the year while filing return of income, the government has introduced section 192 to collect it at the time when salary income is generated, that is at the time when the employer pays salary to the employee.

In this article, we will discuss the importance of PAN in TDS and the consequences of invalid or not quoting permanent account number.

No Tax Credit if PAN not furnished to the Deductor

Before knowing how the tax credit will not be issued to the deductee PAN, we have to understand the whole process of TDS. In TDS process we have three parties involved;

  • Deductor
  • Deductee
  • IT department

Deductor is the person who is making the payments. It’s the job of the deductor to deduct tax while playing and deposit the same with the IT department on or before the due date.

Deductee is the person who receives payment after deduction of the tax such as the contractor, employees, landlords, etc.

In our above example, the employer is the deductor and the employee is the deducted. It’s the duty of the deductor to deposit the tax with the government and file quarterly TDS Returns.

Based on the TDS Returns, tax that is deducted from payments will automatically get credited to deductee PAN. This will happen when the deductor furnishes line-wise details of payments against PAN of the deductee. This means the deductor will assign the TDS amount deducted out of deductee payments to his PAN while filing the TDS return.

Permanent account number or PAN is a 10 digit alphanumeric number allocated by the central government of India to the person who has applied for it.

If you are a deductee, then your entire credit for a financial year can be seen in form 26AS online against the name of the person who has given you credit.

If you as a deductee has not provided your PAN to the deductor, then credit will not be given back to you even though the TDS amount has been deducted from your payments.

Rate of TDS in absence of Permanent Account Number

As per the provisions, every deductee shall furnish his PAN to the deductor. As an employee, you must furnish your permanent account number to the employer.

In absence of permanent account number, the deductor shall deduct tax at the highest rate out of the following;

  • 20%
  • The rate in force or Rate specified in the act

The highest rates of the above will also be applicable in cases where PAN provided to the deductor is invalid or doesn’t belong to the deductor.

PAN has to be compulsorily quoted in the following forms given for non-deduction of TDS or to deduct at a lower rate;

  • 15G or 15H – self-declaration for non-deduction of tax
  • 13 – application for obtaining a certificate for a lower rate of tax deduction

If you have not quoted PAN in the above forms, then the TDS amount has to be deducted at the highest rate of tax as mentioned above.

For better compliance, both deductee and deductor has to quote their permanent account number or PAN in all invoices, vouchers and other correspondence so that conflict of TDS will not arise.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.