Section 206AA - Higher TDS Rate Where PAN Not Furnished
# Higher TDS for Non-PAN Cases — Section 206AA
## Rule
Where a deductee fails to furnish PAN to the deductor, TDS is to be deducted at the higher of:
The rate specified in the relevant TDS provision, OR
The rate of 20%.
## For Royalty / FTS / Interest to Non-Residents
The applicable higher rate is 20% or the rate prescribed under the section, whichever is higher (DTAA rate cannot be applied without PAN, subject to Rule 37BC exceptions).
## Practical Effect
Deductee should always furnish PAN to avoid being subjected to the higher 20% rate.
Worked example
### Example 1
Example — B Ltd. pays ₹ 6,60,000 rent for machinery to Mr. Raman (FY 2025-26). Mr. Raman has NOT furnished PAN.
Normal rate under section 194-I for plant/machinery = 2%.
Under 206AA, higher of 2% or 20% = 20%.
TDS = ₹ 6,60,000 × 20% = ₹ 1,32,000.
⚠️ Common exam mistakes
Continuing to apply the section-specific rate (e.g., 2% or 10%) when PAN is missing.
Forgetting that 206AA overrides DTAA benefit for non-residents in most cases.
Bare-Act text Section 206AA · Income-tax Act, 1961 · click to expand
Section 206AA(1) - 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 (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), 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.