Section 397: compliance and reporting for deductors and collectors

TAN - Tax Deduction and Collection Account Number

Every person deducting or collecting tax must apply for a TAN from the Assessing Officer within the prescribed time, if not already allotted one, and must quote it in all challans, statements, certificates and prescribed documents relating to such transactions.

This TAN requirement does not apply to: a person deducting tax under Section 393(1) [Table Sl. No. 2(i), 3(i) or 6(ii)] (certain rent, immovable property and contractor/professional payments by individuals/HUFs); a person deducting tax on consideration for transfer of a virtual digital asset under Section 393(1) [Table Sl. No. 8(vi)] where covered by Section 393(4) [Table Sl. No. 12.C(a)]; a resident individual or HUF deducting tax on transfer of immovable property under Section 393(2) [Table Sl. No. 17]; or any person notified by the Central Government.

Mandatory PAN and the higher rate for non-furnishing

Every person entitled to receive an amount on which tax is deductible, or paying an amount on which tax is collectible, must furnish a valid PAN to the deductor/collector.

If PAN is not furnished:

• TDS is deducted at the highest of: the rate specified in the relevant provision; the rate(s) in force; or 5% (where tax is deductible under Section 393(1) [Table Sl. No. 8(ii) or 8(v)]) or 20% in any other case.
• TCS is collected at the highest of: twice the rate specified in the relevant provision; or 5% - subject to an overall cap of 20%.

Carve-outs from the higher-rate rule

The higher TDS rate for missing PAN does not apply to a non-resident (not being a company or foreign company) in respect of interest on long-term bonds under Section 393(2) [Table Sl. Nos. 2, 3 and 4], and other prescribed payments.

The higher TCS rate does not apply to a non-resident without a permanent establishment in India.

For rent under Section 393(1) [Table Sl. No. 2(i)], if the higher rate applies, the deduction cannot exceed the rent payable for the last month of the tax year or of the tenancy.

If a person does not furnish a valid PAN in a self-declaration under Section 393(6) or 394(2), that declaration becomes invalid; if not furnished in an application under Section 395(1) or (3), no certificate is granted. Once a declaration becomes invalid for this reason, the deductor/collector must apply the higher rate.

Paying over the tax and filing statements

Every deductor, collector, or employer under Section 392(2)(a) must pay the tax deducted/collected/determined to the credit of the Central Government within the prescribed time.

After payment, the deductor/collector must deliver a statement (TDS/TCS return) to the prescribed income-tax authority, for the prescribed period, in the prescribed form, giving prescribed particulars, within the prescribed time.

The prescribed authority in turn delivers a statement to buyers/licensors/lessees under Section 394(1) [Table Sl. Nos. 1 to 4 or 9].

A person paying any sum to a non-resident (not being a company or foreign company), whether or not chargeable to tax, must furnish information about that payment in prescribed form and manner.

For Government offices, where TDS/TCS is paid to the Central Government without a challan, the Pay and Accounts Officer, Treasury Officer, Cheque Drawing and Disbursing Officer or other responsible person must file the corresponding statement.

Correction statements

A correction statement may be delivered within two years from the end of the tax year in which the original statement was required to be delivered (or under the corresponding provision of the Income-tax Act, 1961).

Banks, co-operative societies and public companies paying interest below the TDS threshold under Section 393(1) [Table Sl. No. 5(ii) and (iii)] must still file a statement of such interest payments; the Board may extend a similar reporting requirement to other payers of income liable for TDS.

A person responsible for collecting tax who fails to collect it under Section 394 remains liable to pay the tax to the credit of the Central Government.

Frequently asked questions