Should PAN be necessary in every case?

You have highlighted the liberalisation proposed in matters relating to tax deduction at source (TDS) in the Finance Bill, 2010. However, there is a nightmare looming large with effect from April 1, 2010 in view of the amendment made by the Finance (No.2) Act, 2009, to Sec. 206AA which requires deduction of tax at the prohibitive rate of 20 per cent for every disbursement covered by tax deduction at source, if Permanent Account Number (PAN) of the deductee is not made available to the deductor.

It is made clear that in the absence of PAN, no certificate of nil deduction or deduction at a lower rate can be authorised under Sec. 197. Similarly, no self-declaration for nil deduction can be filed under Sec. 197A by individuals, including senior citizens, in Form 15G or 15H. This will place considerable difficulty for many small taxpayers who do not require PAN and do not have them.

The serious difficulties brought on this class of persons, who fall below the exemption limit, may be brought to the notice of the government.

Sec. 139A requires Permanent Account Number (PAN) to be obtained only by those who have assessable total income or turnover exceeding Rs. 5 lakh or charitable institutions which are exempt but are required to file return under Sec. 139(4A) of the Act.

The notification may be issued for any other class of persons for whom such PAN will be required.

Revenue's interest is sufficiently protected for tracking persons having notified transactions above the prescribed limit without PAN by requiring declaration in Form 60 prescribed under Rule 114B with complete details of identity and address of the declarant.

There is, therefore, no purpose in requiring PAN from persons who do not have taxable income and, in most cases, who are not likely to have taxable income in view of the exemption limit, which covers less than 3-4 per cent of the total population.

Banks and other institutions find that they will have to deduct tax at 20 per cent in a very large number of small investors, who can no longer file self-declaration of non-liability, since they are most reluctant to apply for PAN because of their apprehension as to possible harassment from the Income Tax Department, though there may be no justification for such apprehension.

Great burden

Deduction of tax at this punitive rate would result in collection of enormous amount of refundable tax putting a great burden on the taxpayers in having such tax locked up and with the need for filing return along with refund application in such cases.

Tax administration itself will be burdened with the task of monitoring tax deductions.

There is also likelihood of many of the persons shifting their investments or splitting them to avoid tax deduction at source by having income from each such investment below the tax deductible limit.

There is also no point in loading the system with an enormous number of taxpayers with no liability and placing a strain on computerisation and in retrieval of information therefrom.

There had been a number of complaints on this issue with mounting pressure as the D-Day is drawing near. It is understood that writs have been filed against this provision before the Andhra Pradesh and the Madras High Courts and these have been admitted and notice ordered.

It is necessary that the tax administration does not leave the matter for litigation.

Review and withdrawal of this provision, when the Finance Bill, 2010, becomes law, would be a welcome measure.