Monday, December 11, 2023

A Simplified Compliance Guide on TDS Rates, Inoperative PANs, and Penalties

In the intricate realm of taxation, understanding the complexities of Tax Deducted at Source (TDS) rates, especially in the context of Inoperative PANs, is crucial. This article aims to simplify the subject, offering a comprehensive guide to compliance and avoiding penalties.

Navigating TDS Rates and PAN Verification: A Simplified Compliance Guide

In the complex world of taxation, comprehending the link between PAN and Aadhaar is pivotal. Let’s unravel the intricacies of Tax Deducted at Source (TDS) rates, particularly when dealing with Specified Persons and Inoperative PANs.

Inoperative PANs: Impact on TDS Rates

Effective from July 1, 2023, Inoperative PANs face higher TDS rates, emphasizing the need to link PAN with Aadhaar. To understand TDS rates for Specified Persons or those with an Inoperative PAN, let's delve into sections 139AA, 206AA & 206AB of the Income Tax Act, 1961, alongside Rule 114AAA of the Income Tax Rules.

Linking PAN with Aadhaar:

As per Section 139AA, individuals with a PAN issued before July 1, 2017, who are eligible for Aadhaar, must link the two. Failure to do so results in PAN becoming inactive after June 30, 2023. For Inoperative PANs, the tax deduction rate under Chapter XVIIB is higher, as specified in Section 206AA.

An Inoperative PAN can be revived by paying a fee of Rs. 1000.

Higher TDS for Missing PAN (Section 206AA):

Section 206AA stipulates that if a deductee fails to provide PAN, tax is deducted at the higher of the specified rate or 20%, with a 5% cap for certain sections like 194-O and 194Q. An invalid or mismatched PAN leads to a higher deduction.

Increased TDS for Specified Persons (Section 206AB):

Effective from July 1, 2021, Section 206AB intensifies TDS rates for specified persons who haven't filed returns and had over Rs. 50,000 in TDS and TCS. The rate is the higher of the specified, twice the prevailing, or a flat 5%.

TDS Rates for Inoperative PANs: A Quick Reference

Regular SectionRegular RateInoperative PAN RateSpecified Person RateInoperative & Specified Person Rate

Checking PAN Status on TRACES: A Proactive Step

Before filing TDS returns, businesses and individuals are advised to check PAN status on TRACES (TDS Reconciliation Analysis and Correction Enabling System). This proactive step helps avoid short deductions and potential penalties.

How to Verify PAN or Download TAN-PAN Master on TRACES:

TRACES serves as the online portal for TDS and TCS. Here's a simple guide:

  1. Log in to TRACES: Use your User ID, Password, TAN, or PAN.
  2. PAN Verification: Navigate to Statements / Payments > PAN Verification.
  3. Verify PAN: Use the available options:
    • Option 1: Search PAN - Enter PAN and Form Type.
    • Option 2: Download TAN-PAN File - Enter Financial Year and Form Type.
  4. KYC Validation: Choose between DSC or without DSC.
  5. Request to Download: After KYC, a unique Request Number is generated.
  6. Requested Downloads: Access Downloads > Requested Downloads.
  7. Download the File: If the status is 'Available,' click to download. If 'Submitted,' wait 24 to 48 hours.

To ensure compliance and avoid penalties, businesses and individuals must check Specified Person status and PAN status through Income Tax Reporting. Taking proactive steps guarantees adherence to regulations and shields against unintended financial implications