While these documents are mandatory for tax-filing purposes, now the Government of India has issued a mandate under which employees may have to pay 20% of their annual salary as Tax Deducted at Source (TDS) for not providing their PAN and Aadhaar Card details. Here's all you need to know.
Who should provide PAN and Aadhaar details?
The Government of India mandated new rule applies to all employees earning an annual income of ₹250,000 and above. In case your income exceeds ₹250,000 per annum, you may be calling for trouble if you fail to provide your employer with your PAN and Aadhaar Card details. The Income Tax Department has issued a mandate to Employers, asking them to deduct a TDS amount of 20% of employees' salary form all employees who've not furnished their PAN card number and Aadhaar card details.
Reasons why the TDS rule has come into effect
The Central Board of Direct Taxes or CBDT formulated the TDS rule, early this year and it has come into effect from January 16, 2020, wherein employers were asked to enforce it in their companies. The TDS rule applies to all salaried professionals, employed within the public and private sector in India and earning an annual income of ₹250,000 and above.
The objective behind formulating the TDS rule is to closely monitor the TDS payments and revenues in the segment of employed individuals earning a sum exceeding the sum mentioned above. IN FY2018-2019, the revenue generated from this particular segment amounted to approximately 37% of the total sum collected as direct tax.
According to the CBDT, the lack of PAN card and Aadhaar card details are creating issues when people need money on credit or loans.
CBDT circular – Excerpts and specifications
The CBDT has framed an 86-page circular in which it has made PAN and Aadhaar details compulsory, per Section 206-AA of the Income Tax Act of India.
As mentioned in the CDBT circular, "Section 206AA in the Act makes furnishing of PAN or Aadhaar number, as the case may be, by the employee compulsory in case of receipt of any sum or income of amount, on which tax is deductible." It further states that in the event that an employee fails to provide their PAN and Aadhar details, the employer must bear the burden of responsibility to make the deduction as per the tax rate applicable to the employees' salaries or at 20% and above, depending upon the tax slabs applicable to the employees.
How is TDS calculated as per the new rule?
Employees earning an annual salary less than ₹250,000 do not have to worry about tax deductions as per the new TDS rule. However, if your annual salary attracts around 20% tax after various deductions, then the TDS rate of 20% will be applicable to you.
If the employee falls under the 30% tax slab, then your employer will calculate the average tax rate, which is the employee's total tax liability and divide it by the total annual income. Even in case of employees falling under the 30% tax slab, if the average tax rate is 20%, then a TDS amount of 20% will be deducted.
Note that, despite the deduction, employees will receive exemptions from paying education and/or health tax at 4% rate if higher rate deductions are applicable.Final word: So, if you haven't yet, make sure you submit your PAN card and Aadhaar details to your employer before your February salary is processed, or else, prepare to pay 20% of your salary as TDS.