There are two employees (not having PAN) in our Noida office (salary Rs. 13,50,000 and Rs. 14,00,000). In spite of our persuasion, they are not interested in obtaining PAN. How much tax is deductible in these cases? Should we include education cess in the rate of 20 per cent TDS rate under section 206AA? Likewise, our company will have to make payment to a foreign company of Rs. 1.5 crore in the month of November. PAN is not available, tax will be deducted at the rate of 20 per cent. Should we deduct tax at the rate of 20 per cent or 21.12 per cent?
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Surcharge is applicable when recipient is a foreign company and the payment or credit subject to TDS is more than Rs. 1 crore. This is imposed by sub-sections (5)/(6) of section 2 of the Finance Act, 2010 read with Part II of the First Schedule to the Finance Act. These sub-sections read as follows –
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Surcharge is applicable when recipient is a foreign company and the payment or credit subject to TDS is more than Rs. 1 crore. This is imposed by sub-sections (5)/(6) of section 2 of the Finance Act, 2010 read with Part II of the First Schedule to the Finance Act. These sub-sections read as follows –
(5) In cases in which tax has to be deducted under sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income-tax Act, at the rates in force, the deductions shall be made at the rates specified in Part II of the First Schedule and shall be increased by a surcharge, for purposes of the Union, calculated in cases wherever prescribed, in the manner provided therein.
(6) In cases in which tax has to be deducted under sections 194C, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194LA, 196B, 196C and 196D of the Income-tax Act, the deductions shall be made at the rates specified in those sections and shall be increased by a surcharge, for purposes of the Union, in the case of every company, other than a domestic company, calculated at the rate of two and one-half per cent of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees.
There is no reference of section 206AA in the two sub-sections of section 2 of the Finance Act, 2010. Likewise, a reference of section 206AA is missing in the First Schedule to the Finance Act.
Education cess is imposed by sub-sections (11) and (12) of section 2 of the Finance Act, 2010. Even in these sub-sections, one fails to find out a reference of section 206AA. Consequently, the rate of 20 per cent under section 206AA cannot be increased by surcharge and education cess.
In the case of payment to foreign company tax will be deducted by you at the rate of 20% (I am assuming that the normal TDS rate is lower than 20%). In the case of salary payment TDS will be calculated as follows –
