The Hindu Business Line : Tax deduction at source: Quoting PAN will entail lower rate

The Finance Ministry has come up with an innovative proposal to expand the use of permanent account numbers (PAN) and, thereby, widen the tax base in the country.

Budget 2009-10 seeks to amend the income-tax law to specify that tax would be deducted at 20 per cent in all cases where the deductees fail to furnish their PAN. If the PAN is furnished, then the normal rates as specified under the law will apply.

A deterrent

Simply put, the 20 per cent rate on tax deducted at source (TDS) will be a deterrent and compel many to obtain and furnish PAN to deductors. Otherwise, it will directly impact their cash flows in terms of higher tax payout at source.

The proposed change in law will become effective from April 1, 2010.

However, this proposal is likely to impact non-residents as they would now be required to register with the tax department and obtain PAN.

The Finance Bill 2009 specifies that PAN must be quoted in all applications that non-residents make with the department for obtaining certificates under Section 197 of the Income-Tax Act.

“The proposed change will ensure greater tax compliance and bring in more regular taxpayers for the tax department.

“However, it may pose some hardship for non-residents”, Ms Neeru Ahuja, Tax Partner, Deloitte Haskins & Sells, told Business Line. The proposed change will impact all sectors including the road transport sector. Meanwhile, the All-India Motor Transport Congress (AIMTC) has sought an extension of the date for differential treatment between the complying and non-complying truckers to September 1, 2010.

Truckers’ take

“Several truckers are illiterates….We need some time to make them aware of the provisions,” said Mr J.M. Saxena, Director, AIMTC, while welcoming the move. He added that AIMTC has already written to the Finance Minister for extending the date to September 1, 2010.

According to Mr S.P. Singh, Fellow, Indian Foundation of Transport Research and Training, “Government should make it mandatory to put the PAN details of the vehicle owner on the registration certificate.”

Onus on service user

The idea is to put the onus of having the PAN details of the truck owner on the service user – which could be a goods booking agent, freight forwarder, larger transport company or even an end user – who deducts the tax and deposits it with the Government. In case the PAN details are quoted, the service tax will be lower.

“The rate of TDS will be 20 per cent in all cases if PAN is not quoted by the deductee with effect from April 1, 2010,” according to the explanation of the Finance Bill.

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