Employer may cut 20% tax from your salary on not sharing PAN, Aadhaar

Employees will soon have to pay 20 percent from their salary as tax if they fail to furnish Permanent Account Number (PAN) and Aadhaar before the employer, Central Board of Direct Taxes (CBDT) said in a recent circular. This new norm will be applicable to employees whose salary is above the threshold of Rs 2.5 lakh a year.

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According to Section 206AA of the Income-Tax (I-T) Act, the furnishing of PAN or Aadhaar number is mandatory for the employees in case of receipt of any sum or income or amount, on which tax is deductible.

According to CBDT, if the employee fails to produce PAN or Aadhaar card, the employer has been made responsible to make Tax Deducted at Source (TDS) at higher of the following rates:

At the rate specified in the relevant provision of the Act

At the rate or rates in force

At the rate of 20 percent.

TDS is a mean of collecting income tax. Any company making a payment is required to deduct tax at source if payment exceeds certain threshold limit.

As per the I-T law, the employer is supposed to determine the tax amount in all the three conditions (mentioned above) and apply the higher rate of TDS. However, where the income of the employee computed for TDS is below taxable limit, no tax will be deducted, CBDT said.

"In case the employer doesn't produce PAN or Aadhaar and the income of the employee computed for TDS is above taxable limit, the employer will calculate the average rate of income-tax based on rates in force," the order read.

If the tax calculated is below 20 percent, deduction of tax will be made at the rate of 20 percent and in case the average rate exceeds 20 percent, tax is to be deducted at the average rate, as per the new notification.

Health and education cess will be levied at the rate of 4 percent of income tax including surcharge wherever applicable. However, this will not be deducted in case the tax is deducted at 20 percent under Section 206AA of the I-T Act.