Draconian PAN provision inserted in I-T Act; Even non-residents not spred despite Sec 139A not making it mandatory for them

By TIOL News Service

NEW DELHI, JULY 08, 2009: PAN is the basic 'penetrating needle' for the Income tax Department to rope in every income earning person. It is a fact that our taxbase continues to be a major concern for policy makers. And in order to widen the taxpayers' base the I-T Department intends to ride the vehicle of PAN in a big way. Once a common identifier like PAN is realised as a taget, it would quickly facilitate dematerialisation of the TDS.

To achieve these targets, the Union Budget 2009 shows some palpable signs of impatience and has thus opted for some draconian provision. PAN-quoting has been made mandatory for TDS deductors and if a deductee fails to provide the same, the penal rate of 20% TDS will immediately come into force. If one misquotes one's PAN or errs in putting the same, how will the hapless deductors know so? There is no answer to it but the tax credit will be disallowed and the deductors will also face the music for deducting lesser TDS by merely presuming that the PAN quoted by them is correct.

Even a non-resident will not be spared even though under section 139A and the rules made thereunder, a non-resident is not required to mandatorily obtain a PAN. May be someone has forgotten to make an amendment in the main Section.

But where are these amendments in the Budget?

Hidden in the budget documents is this stern provision. Section 139A of the Income-tax Act which comes under chapter XIV prescribing the procedure of assessment, is a longish section laying down the requirement of obtaining and quoting of PAN in different situations. One would have thought that any changes relating to PAN would have been found in this section. Sub section 5A of this section lays down the obligation of providing PAN by the deductees of TDS to the deductors. This was introduced by the Finance Act, 2001.

One may also recall that right from 2004, the Government has been trying to introduce the concept of dematerialization of the TDS. One of the roadblocks in this attempt has been the fact that deductors cannot do much if PAN is not provided by the deductees resulting in a mismatch. Government first tried to bulldoze its way through by issuing two circulars. Having failed in its attempt and facing the ignominy of having to withdraw or suspend its circular, the North Block Mandarins have now come up with a novel way of improving compliance with provisions of quoting PAN through TDS regime.

It is now provided in the newly inserted section 206AA that unless the deductees provide PAN, the deductors are required to deduct tax which may be as high as 20% of the income. It has been further provided that despite declaration under section 197A in form 15G or 15H tax will be deducted at higher rate if PAN is not quoted therein. A firman has also been issued to the AOS not to issue any certificate of non-deduction or deduction at a lower rate unless PAN is quoted. And what happens when someone misquotes his PAN? It shall now be deemed that he has not quoted his PAN and tax will have to be deducted at the higher rate. And how does the hapless deductor know that someone has misquoted his PAN? There is no answer but the law requires to address this sticky problem as no law can punish one for no fault of the deductor. If it does, it would lose the force which comes from willingness to comply with the law!