income tax

Understanding Higher TDS Rates Without PAN: Key Implications for Seniors and Foreign Entities

Higher TDS Without PAN

In the absence of a Permanent Account Number (PAN), Tax Deducted at Source (TDS) is levied at 20% or the applicable higher rate, irrespective of whether you are a non-resident or a senior citizen. This situation could lead to higher tax deductions and result in payers and receivers compliance problems.

Senior Citizens' Reliefs

Section 194P

Seniors aged 75 and above with only interest and pension income from one specific bank can choose not to file their Income Tax Return (ITR) by filing Form 12BBA. The bank will, in this situation, calculate and deduct the tax as is necessary, thereby settling the tax burden.

Budget 2025 Changes

The TDS limit on interest income for senior citizens has been raised to ₹1 lakh per annum from the previous limit of ₹50,000 and thereby making bank deposits more attractive to this segment.

Penalty-Free Withdrawals

Seniors will have the facility to withdraw cash from old National Savings Scheme (NSS) accounts from October 2024 without charging any penalty.

Foreign Entities and PAN Requirements

Foreign companies earning taxable income in India need a PAN to avoid higher TDS rates. However, this exemption does not extend to those eligible under Rule 114AAB, which includes specified cases like specified fund investors.

Moreover, the majority of Indian payors require a PAN to avoid any compliance risk, even if there is a tax treaty with a lower rate.

Avoidance of Higher TDS/TCS for Non-Filers

From April 1, 2025, provisions mentioned under Sections 206AB and 206CCA, that were insisting on stricter TDS/TCS for non-filers, have been withdrawn. Such changes ease the conditions of compliance and avoid blocking of capital of firms.

The Supreme Court, in the case of GE India, made it clear that TDS is required only if the payment is liable to tax in India. Therefore, if a payment is not subject to tax, no TDS is needed, even for non-residents.

Practical Takeaways

For Senior Citizens:

  • Always give your PAN to financial institutions to avoid higher TDS deductions.
  • In the event of eligibility under Section 194P, submit Form 12BBA to your bank to get exemption from the filing of ITR.
  • Benefit from higher thresholds for TDS and penalty-free withdrawal of NSS account balances.

For Foreign Companies:

  • Get a PAN in the event of anticipating income from India, other than where you are eligible for an exemption under Rule 114AAB.
  • Give proper documentation to duly claim treaty benefits and prevent excessive TDS.
  • If income is exempt from tax in India, inform your Indian payer about the Supreme Court verdict to avoid unnecessary TDS deductions.

For Indian Payers:

  • Consider whether payments to non-residents are chargeable to tax in India before invoking TDS.
  • With abolition of increased TDS/TCS rate for non-filers effective April 2025, compliance processes will be simplified.

FAQs

Q: Do all foreign companies need a PAN to receive payments from India? A: No. Exemption is there for some non-residents investing in notified funds under Rule 114AAB. For payments other than most of these, a PAN is required to avoid increased TDS.

Q: Is a senior citizen exempted from filing an ITR? A: Senior citizens above 75 years old with the receipts of pension and interest from the same bank stated and having submitted Form 12BBA are exempted under Section 194P.

Q: What do I do if TDS at a higher rate is made because there is no PAN? A: The recipient can also claim refund by submitting a return of taxes. However, this is conditionally available with a PAN, which proves to be an issue for senior citizens and non-residents.