From July 1 You May Have To Pay Higher TDS On Your Bank Or Post Office Deposits, Here’s Why
If you fail to link your Permanent Account Number (PAN) with your Aadhaar, you may experience higher tax deduction at source (TDS) on your interest income, dividend, and other income, as well as the termination of your systematic investments in mutual funds and the inactivation of your demat accounts if any. The Income Tax Department has mandated that Aadhaar must be linked to a PAN by June 30, 2021. In case it is not done on or before the stated deadline, your PAN will be considered as inoperative or invalid from July 1, 2021 in line with Rule 114AAA(3) of the Income Tax Act.
According to Section 206AA, a taxpayer who receives taxable income is required to provide their PAN to the receiver of such amount. This is relevant for both resident and non-resident taxpayers. In the instance of residents, payments would include salary, rent, and so on. If the PAN furnished to the receiver or deductor is unserviceable or invalid, the individual is considered to have missed submitting his or her PAN to the deductor, and the regulations of sub-section 206AA(1) would apply accordingly. As a result, in line with Rule 114AAA(3), in case of an invalid PAN due to non-linking with Aadhaar, TDS shall be levied at a higher rate of 20% in compliance with Section 206AA of the Act.
The higher TDS rate of 20%, on the other hand, will be deducted primarily for certain income - such as interest on bank or post office fixed deposits, dividend income from mutual funds, and so on. Therefore, keep in mind that under Section 139 AA of the Income Tax Act 1961, every individual who has been issued a PAN and an Aadhaar number must link both documents by June 30, 2021. You can compute your income and taxes, submit an income tax return (ITR), and seek a refund if the tax deducted does not reflect the exact tax payable.
Therefore, you must adhere within the deadline, since once a higher tax is calculated, the receiver may not execute a refund in such situations, and you must seek the refund of the surplus tax deducted when you file your Income Tax Return (ITR). Individuals who do not finish the linking procedure by the deadline will also risk Rs 1,000 as a penalty. The penalty for failing to link a PAN with Aadhaar card has been introduced under a new section (Section 234H), of the Income Tax Act.
Why PAN and Aadhaar linking is a must?
You must provide your PAN card while opening a bank account, Demat account, or requesting for a debit or credit card with a bank. If you are conducting a transaction for more than Rs 50,000, you must provide your PAN. If you deposit more than Rs 50,000 or Rs 5 lakh in lump sum in a fiscal year in a bank or post office account, you must provide your PAN. When purchasing mutual funds, debentures, or other securities worth more than Rs 50,000, you must provide your PAN. If you are acquiring an immovable property for Rs 10 lakh or more, you must provide your PAN card. At any one time, a cash payment of more than Rs 50,000 in relation to travel to any foreign nation or payment for the purchase of any foreign currency is prohibited.
For payment of more than Rs 50,000 to pre-paid payment instruments in a fiscal year, PAN is also required. Deposit of more than Rs 50,000 against a life insurance premium in a fiscal year. Selling or purchasing securities other than shares for more than Rs 1 lakh in a single transaction. Purchase or sale of shares in a firm that is not listed on a recognised stock exchange for an amount of more than Rs 1 lakh per transaction. Sale or acquisition of goods or services of any kind other than those listed above for more than Rs 2 lakh per transaction.
PAN and Aadhaar linking is a must not only for filing income tax returns but also to conduct the above-mentioned transactions that require a PAN. That being said, the PAN card must be linked to an Aadhaar card today or on or before June 30, 2021.