# Timing of TDS Deduction and Section 206AA (PAN)

## General Rule — When is TDS Deducted?

TDS is required to be deducted at the earlier of:

The time of payment, OR
The time of crediting the account of the payee

## Exception — TDS Only at Time of Payment

In the following cases, TDS is deducted only at the time of actual payment (not on credit):

1. Salary (Section 192)

2. EPF payment (Section 192A)

3. Winnings from lotteries / horse races (194B / 194BB)

4. Maturity of LIP (Section 194DA)

5. Compensation on compulsory acquisition of property (Section 194LA)

6. Dividend (Section 194)

## Cess & Surcharge — When Added to TDS Rate?

Payee	Cess & Surcharge
Resident	NOT added to TDS rate
Non-Resident / Foreign Company	Added to TDS rate

## Section 206AA — Higher TDS for No-PAN Cases

If the payee does not furnish his PAN, TDS shall be deducted at the rate which is HIGHER of:

1. 20%, OR

2. Rate as per the relevant TDS section.

### Exception

For Section 194Q (purchase of goods), the no-PAN rate is specifically 5% (not 20%).

Worked example

### Example 1

Q: ABC Ltd credits ₹5,00,000 commission to Mr. P's account on 31.03.2025 but pays on 10.04.2025. When is TDS u/s 194H to be deducted?

Solution: General rule — earlier of payment or credit. Hence TDS must be deducted on 31.03.2025 (date of credit).

### Example 2

Q: A company credits ₹10,00,000 salary to employee's account on 31.03.2025 but pays on 05.04.2025. When is TDS u/s 192 deducted?

Solution: Salary is an exception — TDS u/s 192 is deducted only at time of payment = 05.04.2025.

### Example 3

Q: Royalty payment to a foreign company without DTAA relief is ₹10,00,000. Rate is 10%. Compute TDS.

Solution: Since payee is a foreign company, cess (4%) is added: Effective rate = 10% + 4% cess = 10.4%. TDS = ₹10,00,000 × 10.4% = ₹1,04,000.

⚠️ Common exam mistakes

Adding cess/surcharge to TDS rates for resident payees (it should not be added for residents).
Forgetting that for salary, EPF, winnings, LIP maturity, and dividend, TDS is only on payment basis — not on credit.
Applying 20% no-PAN rate to 194Q transactions — the special rate for 194Q is 5%.

Bare-Act text Section 206AA · Income-tax Act, 1961 · click to expand

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 rates specified in the relevant provision or at the rate of twenty per cent.

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Timing of TDS Deduction & Section 206AA

Worked example

⚠️ Common exam mistakes