PAN CARDS TO HELP REDUCE TAX OUTGO

[Dr. Sanjiv Agarwal]

April 2010 brings in yet another significant change in Income tax provisions where by to have a PAN (Permanent Account Number) could bring down your immediate tax outgo in the Form of tax deducted at source (TDS) ie, quoting PAN would mean that a lesser tax would be deducted by the payer of such amount .

Income tax law requires every tax return filing person, a person carrying on business or profession with gross receipts of over Rs 5 lakh or a person entering into specified transactions (investment in stocks, mutual funds, deals in immovable property etc) to obtain permanent account number (PAN). Last year a new provision was added w.e.f. 1 April 2010 to provide for deduction of tax at source (TDS) at a higher rate where no PAN details are provided by the payee to the payer.

IF PAN is not furnished, deductor is required to deduct tax at the rate in force or 20 percent, whichever is higher. For example, if rate of TDS is say, 5 percent and if payee does not provided PAN to payer, tax would be deducted at a higher rate of 20 percent, ie, three times more. PAN is even required for submitting Form 15H or 15G failing which TDS could be deducted @ 20 percent.

This requirement of providing PAN is applicable to the payments to be made to all persons. Not only this, it is now also mandatory to quote PAN on invoices and correspondence between the parties. Cases of non provision, wrong mention, having invalid PAN- all shall be considered as non compliance and tax would be deducted at the higher rate, though final tax liability would remain unchanged.

RELAX WITH PAN

* HAVE A PAN CARD

* PROVIDE PAN TO PAYER

* ENJOY LOWER TDS RATE

* MEANS MORE MONEY IN HAND

* NO TAX REFUND HASSLES

* QUOTE PAN ON ALL INVOICES/ CORRESPONDENCE

* NIL/ LOWER TDS TO BE ALLOWED ONLY TO PAN HOLDERS

* STRENGTHENS REVENUE DATA BASE

The risk of higher tax deduction would ensure compliance as it may otherwise hit the cash flows of small businessmen , investors, professionals etc. Under the tax laws, there is also a provision whereby assessing officer can permit the payment without deduction of TDS or deduction of TDS at a lower rate. Effective April 1, 2010, tax department will not grant any such permission unless the assessee seeking such concession furnishes the PAN alongwith application.

The way forward, therefore, for all payers and payees (including women, minors and senior citizens) is to take immediate steps and obtain PAN, if not already have, so that only appropriate tax is deducted by the payer. Once TDS is deducted, we can not take a U turn and obtain refund of the same except at the time of filing the income tax return. However, one can avail the opportunity of advance payment and in case of higher TDS, payment of advance tax could be adjusted without waiting till the year end.