TDS @ 20% WITHOUT PAN AND ADJUSTMENT ON SUBMISSION OF PAN IN

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8143 Points)

30 August 2010

When PAN is furnished after deduction of tax at 20 per cent

There are two employees - X and Y, who have not disclosed their PAN on April 1, 2010. Monthly salary is Rs. 15,000 and Rs. 40,000 respectively. During April and May 2010, tax is deducted at the rate of 20 per cent by applying the provisions of section 206AA. On June 1, 2010, X and Y get PAN and the same is furnished to the employer. Is it possible to adjust the excess tax against tax deductible from June 2010 onwards ?

Under section 192, tax is deductible on the estimated salary income of the financial year. Tax has to be deducted monthly on the basis of average rate of tax. Sub-section (3) of section 192 permits employers to increase or decrease the amount to be deducted under this section for the purpose of adjusting any excess or deficiency out of any previous deduction or failure to deduct during the financial year. Thus, adjustment of excess deduction during first few months of the financial year, is possible [and permitted by sub-section (3)] in subsequent months. In the case of X and Y, tax will be deducted during the financial year 2010-11 as follows

	X (Rs.)	Y (Rs.)
Tax deduction before intimation of PAN
Salary of April and May 2010	30,000	80,000
Tax deducted at the rate of 20% under section 206AA read with section 192	6,000	16,000
Tax deduction after intimation of PAN on June 1, 2010
Salary income of the financial year 2010-11	1,80,000	4,80,000
Tax (including education cess) at normal rate	2,060	32,962
Less: Amount already deducted before June 1, 2010	6,000	16,000
Balance to be deducted from June 1, 2010 (a)	Nil	16,962
Salary payable during June 1, 2010 and March 31, 2011 (b)	1,50,000	4,00,000
Average rate of tax [(a) ÷ (b)]	Nil	4.24%
Monthly tax deduction from June 2010 onwards	Nil	1,696

Effective adjustment is not possible in the case of X because the amount deductible from July onwards is lower than tax already deducted up to June 2010. X can claim refund from the Assessing Officer by submitting his return of income. However, the employer can extend the benefit of adjustment to Y.

When PAN is furnished after deduction of tax at the rate of 20 per cent in the first quarter

Suppose in the above case, tax is deducted at the rate of 20 per cent up to the end of first quarter because of non-intimation of PAN. The employer submits first quarterly return on July 15, 2010. In the third week of July 2010, PAN is allotted to X and Y and the same is furnished by them to the employer. Is it still possible to adjust the excess tax which is deducted in the first quarter.

Adjustment of excess tax deducted in the first quarter, is possible against tax deductible from the second quarter onwards. There is nothing against this proposition under sub-section (3) of section 192. Tax deduction in the above case will be as follows –

	X (Rs.)	Y (Rs.)
Tax deduction before intimation of PAN
Salary of April, May and June 2010	45,000	1,20,000
Tax deducted at the rate of 20% under section 206AA read with section 192	9,000	24,000
The employer will report the above salary and tax deducted thereon in Form No. 24Q for the first quarter ending June 30, 2010
Tax deduction after intimation of PAN in third week of July, 2010
Salary income of the financial year 2010-11	1,80,000	4,80,000
Tax (including education cess) at normal rate	2,060	32,962
Less: Amount already deducted before July 1, 2010	9,000	24,000
Balance to be deducted from July 1, 2010 (a)	Nil	8,962
Salary payable during July 1, 2010 and March 31, 2011 (b)	1,35,000	3,60,000
Average rate of tax [(a) ÷ (b)]	Nil	2.49%
Monthly tax deduction from June 2010 onwards	Nil	996