20% of salary to be deducted as tax if PAN, Aadhaar not submitted.

The trouble lies ahead for you if your annual earnings are above Rupees 2.5 lakhs and you’ve failed to furnish your Aadhaar and PAN card details to the employer. The Income Tax Department of India has instructed employers to deduct 20% as TDS (Tax Deducted at Source) from the salary of those who have not submitted their Aadhaar ekyc and PAN card details. The CBDT or the Central Board of Direct Taxes formulated this new rule and issued a circular regarding this decision.

• The new rule has come in to effect beginning from the 16th of January 2020.
• The employers must quote the PAN and Aadhaar number in the TDS statement (Form 24Q) for the salary of the employee.
• The IT Act states that an income-earning individual must furnish their PAN or Aadhaar ekyc to the employer.
• This is mentioned in the IT act under Section 206-AA.
• If they fail to do so a deduction will be made on the amount that is taxable at a rate mentioned in the Act or at a rate of 20% whichever amount is higher.

How TDS is calculated on the salary of the employee?

• Separate assessment in all scenarios has to be made to determine the tax dues and the highest amount has to be deducted.
• If the average rate of taxation is below 20% then the tax deduction has to be made at 20%.
• If the average rate is above 20% the average rate has to be considered while deducting taxes.
• If the tax deductions are done at a rate of 20% then 4% deduction of taxes on education and health is not necessary.
• TDS is not required if the annual income of the individual is less than 2.5 lakhs.

The new decision by the Department of Income Taxes has come at a time when the authorities are doing their best to meet the target of direct taxes collected. The rate of corporate taxes has been reduced sharply to encourage more investments and to revive the Indian economy.

• The obligations of the TDS has to be carried out with precision by the employers to prevent penalty.
• The circular states that the TAN (Tax Deductions and Collection Account Number) has to be quoted in the Certificates of TDS, challans and the other documents that are issued.
• You could face a fine of Rupees 10,00 on failing to do it.
• The surcharges and the tax rates applicable to each slab of income earned are mentioned clearly in the circular issued by the IT department to make it convenient for the employers.
• 20% tax deduction in the event of no PAN or the Aadhaar details submitted by employees.

Why Furnish Aadhaar And PAN Details? 

The Aadhaar ekyc has a unique 12 digit number and the biometric and demographic details of an individual in India. The identity of an individual can be established through Aadhaar authentication which helps prevent fraud and crimes. The PAN card is necessary to identify all the financial transactions made by an Individual and serves as an identity proof for the IT Department.

This is essential to stop tax evasions. Furnishing the details of Aadhaar and PAN helps the IT department to carefully monitor TDS payments made by the employee. Besides, they can also keep track of the revenue generated under this segment.

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