Higher Withholding Tax for those with No Permanent Account Number

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Apr. 8 – Beginning this month, tax deducted at source on payments will be higher for taxpayers providing no permanent account number (PAN).

The higher withholding tax rate of as much as 20 percent for taxpayers with no PAN is aimed at improving tax management and compliance. Taxes are required to be withheld at withholding tax rates provided under the Act; or rates provided under the tax treaty or schedules to tax laws; or 20 percent, whichever is higher reports The Economic Times.

A PAN is a ten-digit alphanumeric number issued by the Income Tax Department. It is mandatory for resident taxpayers to quote their PAN when filing tax returns, banking, entering into specified financial transaction, or carrying on business with gross receipts or turnover of more than Rs. 500,000.

PAN is also now required for payments made to all persons. According to KPMG Executive Director Krishan Malhotra, it remains ambiguous whether non-resident payees are required to obtain a PAN and there is considerable debate whether beneficial tax rates – as provided under avoidance of double taxation conventions entered into by India – shall be over-ridden where the non-resident fails to provide a PAN.