Your employer could soon start deducting 20 per cent of your salary in case you fail to provide your PAN (Permanent Account Number) and Aadhaar details to them. This latest rule of the CBDT (Central Board of Direct Taxes), which came into effect on January 16, will be applicable for all those who earn above Rs 2.5 lakh per annum.
With this rule, the CBDT aims to keep a close eye on TDS (Tax Deducted at Source) payments and revenue earned via this segment, which amounted to around 37 per cent of the total direct tax collection in FY19.
According to an 86-page circular issued by the CBDT, employees have to quote PAN and 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 in case an employee fails to provide the required 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, your income is below Rs 2.5 lakh per annum, no tax will be deducted. After several deductions, if the salary attracts approx 20 per cent tax, the TDS rate of 20 per cent will apply. In case your salary attracts a 30 per cent 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 per cent, the TDS would be 20 per cent.
Employees will, however, be exempted from paying education and health cess at 4 per cent rate in case the deduction made is at a higher rate. According to the CBDT, the lack of PAN or Aadhaar details is creating problems in giving credit. Tax deducters are, therefore, advised to collect and quote correct Aadhaar or PAN details, details in the TDS statements for salaries in the Form 24Q, which is for tax deducted from salaries.