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Without PAN, How to deduct & Calculate TDS from Employees u/s. 206AA.

TDS calculation for employees without PAN u/s 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-

It is apparent 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. 2.0 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. ?

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.

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