LOOPHOLE IN TDS

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 November 2010 HELLO,

IF A PERSON WIN LOTTERY RS. 1 LACS SUPPOSE,
THEN DOES NOT QUOTE PAN
THEN UNDER SECTION 206AA, MAXIMUM OF 20% OR 30 % TDS IS TO BE DEDUCT,
AND NO SURCHARGE , NO EDUCATION CESS.

THEN ON 1 LACS 30% TDS RS. 30000/- DEDUCTED.

IT MEANS HE IS ESCAPED FROM EDUCATION CESS AMT THAT IS 30000*3% = 900/-

BCOZ HE NOT FILLED RETURN OF INCOME TAX.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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23 November 2010 Do not worry no Loop hole.

As per the recent amendments W.e.f 01/04/2010, on non-submission of PAN, Tax is to be deducted @ higher of prescribed rate or 20%.

ü The Finance (No.2) Bill, 2009 had introduced a new section 206AA in the Income-tax Act, 1961 (ITA), which provides that every recipient of income is required to furnish its Permanent Account Number (PAN) i.e. tax registration number to the payer.

ü From the new financial year, Assessees will have to pay a higher income tax at source if they do not have a Permanent Account Number (PAN). Tax at higher of the prescribed rate or 20 percent will be deducted on all transactions liable to tax deduction at source (TDS), if the person liable to the tax does not possess a PAN.

ü All those liable to pay the tax, including non-residents, need to obtain a PAN by March 31, 2010. This number has to be communicated to those liable to deduct tax before the tax is actually deducted on transactions after that date.

ü As such, all financial transactions without PAN will attract tax from April 1, 2010. The Income Tax Department has already made it mandatory for employers to quote PAN of their employees and parties from whom tax is deducted while filing TDS returns.

ü According to the new provisions, declaration by a taxpayer under Section 197A for non-deduction of TDS on payments will not be valid if it is given without quoting PAN. The certificate for deduction at a lower rate or no deduction will not be given by the assessing officer under Section 197 in the absence of PAN.

ü Henceforth any person eligible for deduction fails to do so, he will have to pay 20 percent TDS instead of two percent on rental payments for plant and machinery and 10 percent on land and building.

ü To avoid disputes regarding quoting, no quoting of PAN or accuracy, all eligible for the deduction and those liable to deduct will be required to quote PAN in all correspondence, bills, vouchers and other documents sent to each other.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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23 November 2010 206AA. Requirement to furnish Permanent Account number

(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.

(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).

(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.

(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.

(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.”

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Aditya Maheshwari

Aditya Maheshwari (Expert)
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23 November 2010 Rightly said by Sanjay

tax shall be deducted at the higher of the following rates, namely:—

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

which would be 30% in this case.

taxindiaconnect

taxindiaconnect (Expert)
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23 November 2010 Mr. Anonymous is right as the TDS wouuld be max 30% in this case, hence the payee would be able to save education cess. since he does not have PAN, he is not easly traceble.

Querist : Anonymous

Querist : Anonymous (Querist)

25 November 2010 yes actually taxindiaconect taken my query rightly.

and mr. aditya & sanjay gupta not even my question

Querist : Anonymous

Querist : Anonymous (Querist)

25 November 2010 but i dont think that income tax dept. is that much liberal

Aditya Maheshwari

Aditya Maheshwari (Expert)
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25 November 2010 I think the original question has been modified. So answer would change accordingly. TDS would be deducted @ 30% in either case. No tax saving in any case.

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