New Delhi: The Income Tax Department has reiterated that employers must deduct tax at source at 20% or a higher rate if employees fail to disclose their Permanent Account Number (PAN) or Aadhaar number.

In a recent circular, the Central Board of Direct Taxes (CBDT) has advised employers that they should procure and quote correct PAN or Aadhaar number of employees in the tax deducted at source (TDS) statements for salaries.

According to the Income Tax Act, people earning an income have to furnish their PAN to their employer, failing which a deduction on the taxable income may be made at the applicable rate specified in the Act or is in force or at 20%, whichever is higher.

The circular, issued last week while companies prepare their accounts for the financial year end, said employers have to assess tax dues in all scenarios and deduct the highest of all. If the average rate of income tax based on the rates in force is below 20%, the deduction has to be made at the rate of 20%. If the average rate exceeds 20%, tax has to be deducted at the average rate, said the circular. It also said the 4% health and education cess need not be deducted if TDS is done at the rate of 20%. If the income of the employee is below the 2.5 lakh taxable limit, no TDS is required.

The reminder from the tax department comes at a time the authorities are trying hard to meet their direct tax collection target despite a sharp reduction in corporate tax rates which is aimed stimulating investments and reviving the economy.

Employers try to be meticulous in their TDS obligations as any default on this could invite penalty. The circular reiterated that employers should obtain and quote the tax deduction and collection Account No (TAN) in challans, TDS-certificates, statements and other documents issued. Failure to do so could fetch a fine of 10,000, the circular said. The circular captures the applicable tax rates and surcharges at various income brackets for the convenience of employers.

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