Section 206AA - Higher TDS Rate for Non-furnishing of PAN
# Section 206AA: Consequence of Not Furnishing PAN
## What it Mandates
The deductee must furnish PAN to the deductor. If PAN is not furnished, tax must be deducted at the higher of:
1. The rate prescribed in the Act, OR
2. The rate(s) in force, OR
3. 20% [or 5% in case of section 194Q].
## Special Rate for Section 194Q
For purchase of goods u/s 194Q, the higher rate is 5% instead of 20%. This is a deliberate concession reflecting that 194Q's base rate is only 0.1%.
## Practical Application
The deductor must compare:
Section's prescribed rate
Rates in force (including any DTAA where applicable)
20% (or 5% for 194Q)
and deduct at the highest.
## Scope
Applies across virtually all TDS sections of Chapter XVII-B.
Worked example
### Example 1
Example: Salary case — Mr. A's tax liability on salary works out to 15% but he has not provided PAN.
Higher of: 15% (prescribed) vs. 20% (default 206AA) = 20%
### Example 2
Example: Buyer purchases ₹2 crore worth of goods from a seller who has no PAN; the amount exceeds the ₹50L threshold by ₹1.5 crores.
TDS u/s 194Q normal rate = 0.1%
Section 206AA rate for 194Q = 5%
Apply: 5% × 1,50,00,000 = ₹7,50,000
⚠️ Common exam mistakes
Applying 20% under 206AA for section 194Q — the correct rate is 5% specifically for 194Q.
Forgetting to compare with prescribed rate and rate in force — sometimes the prescribed rate may already exceed 20%.
Applying 206AA to a non-resident who is otherwise exempt from PAN requirements via specific rules (e.g., Rule 37BC compliance).
Bare-Act text Section 206AA · Income-tax Act, 1961 · click to expand
Section 206AA: Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB, shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the higher of the following rates, namely:- (i) at the rate specified in the relevant provision of this Act; or (ii) at the rate or rates in force; or (iii) at the rate of twenty per cent [five per cent in case of section 194Q].