Trouble and hardship is looming for those earning Rs 2.5 lakh per annum but have not provided PAN or Aadhaar details to the employer.
This is consequent to the Income Tax Department asking employers to deduct 20% salary as Tax Deducted at Source (TDS) from all employees who fail to furnish PAN or Aadhaar details.
This rule was formulated by the Central Board of Direct Taxes (CBDT) and came into effect on January 16. The rule will be applicable to those who earn more than Rs 2.5 lakh per annum.
This rule is aimed at keeping a close eye on TDS payments and revenue earned by this segment. In the financial year 2018-19, revenue from this segment amounted to around 37 per cent of the total direct tax collection.
In its 86-page page circular, the CBDT has said employees have to quote PAN or Aadhaar details compulsorily as per the Section 206-AA of the Income Tax Act.
The circular reads: "Section 206AA in the Act makes furnishing of PAN or Aadhaar number, as the case may be, by the employee compulsory in case of receipt of any sum or income of amount, on which tax is deductible."
The circular states that if an employee fails to provide these details, the employer is responsible to make deductions either at the tax rate on the employee's salary or 20 per cent or above.
In case, the income is less than Rs 2.5 lakh per annum, no tax will be deducted.
After several deductions, if your salary attracts approximately 20% tax, the TDS rate of 20% will apply.
In case your salary attracts a 30% tax rate, your employer will compute the average tax rate, i.e, employee's total tax liability divided by total annual income. If the average tax rate turns out to be 20%, the TDS would be 20%.
However, employees will be exempted from paying education and health cess at 4% rate in case the deduction made is at a higher rate.
The CBDT said the lack of PAN or Aadhaar details is creating problems in giving credit.
However, PAN and Aadhaar have to mandatorily linked, the deadline for which is March 31. It was extended from December 31, 2019, and was the eighth time that the deadline was being extended. Section 139 AA (2) of the Income Tax Act says that every person having PAN as on July 1, 2017, and is eligible to obtain Aadhaar, must intimate his Aadhaar number to tax authorities.