CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 206AA — Requirement to Furnish Permanent Account Number (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The PAN-enforcement provision; the DTAA-override question settled against the Revenue.
Finance Act, 2026: No amendment.
Mechanism: Absence of PAN attracts deduction at the higher of the specified rate, the rate in force, or 20%; but a more beneficial DTAA rate prevails for non-residents (section 90(2); Rule 37BC), and section 197/197A relief is unavailable without PAN.
Litigation profile: Litigated and settled on the key point: section 206AA does not override a DTAA (Danisco India).
A. SECTION COMMENTARY
Section 206AA is the PAN-enforcement provision. It provides that any person entitled to receive a sum on which tax is deductible must furnish his Permanent Account Number to the deductor, failing which tax is to be deducted at the higher of the rates specified in the relevant provision, the rates in force, or twenty per cent (and, for certain payments, a higher specified rate). It overrides the other provisions of the Act for this purpose, and a certificate under section 197 cannot be granted, nor a declaration under section 197A accepted, without a PAN. Its object is to make PAN-quoting effectively mandatory by attaching a punitive default rate to its absence.
The collision with tax treaties — section 206AA does not override a DTAA
The most important and most litigated question is whether the 20% default rate in section 206AA can be applied to a non-resident who has no PAN, in preference to a lower rate available under a Double Taxation Avoidance Agreement. The settled answer is that it cannot: a DTAA, given primacy by section 90(2) where more beneficial, prevails over the procedural section 206AA, so a non-resident entitled to a treaty rate is to be taxed at that rate even without a PAN (subject to furnishing the alternative documents). The legislature responded with a proviso and Rule 37BC, relaxing the PAN requirement for non-residents who furnish prescribed alternative particulars (name, address, TRC, tax identification number).
Reach among residents and the certificate/declaration bar
For residents, section 206AA operates with full rigour: no PAN means deduction at the punitive rate, and the section 197 certificate and section 197A declaration routes are closed without a PAN. The provision is thus a strong compliance lever, tempered (for non-residents) only by the treaty-primacy principle and the Rule 37BC relaxation.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
206AA. (1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
(i) at the rate specified in the relevant provision of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of twenty per cent:
Provided that where the tax is required to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words "twenty per cent", the words "five per cent" had been substituted:
Provided further that where the tax is required to be deducted under section 194Q, the provisions of clause
(iii) shall apply as if for the words "twenty per cent", the words "five per cent" had been substituted.
(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.
(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).
(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.
(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.
(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.
(7) The provisions of this section shall not apply to a non-resident, not being a company, or to a foreign company, in respect of—
(i) payment of interest on long-term bonds as referred to in section 194LC; and
(ii) any other payment subject to such conditions as may be prescribed.
C. AUTHORITIES
The authorities establish that section 206AA, being procedural, does not override a more beneficial DTAA rate for a non-resident without PAN. The leading High Court decision is set out. Citations are web-verified.
Cluster 1 — Section 206AA does not override a DTAA
Danisco India (P) Ltd. v. Union of India (2018) 404 ITR 539 (Del)
Issue: Whether tax on a payment to a non-resident without PAN must be deducted at 20% under section 206AA, or at the lower rate available under the applicable DTAA.
Held: Section 206AA does not have an overriding effect over the DTAA; by virtue of section 90(2) the more beneficial treaty rate applies, so TDS on a payment to a non-resident without PAN is to be made at the DTAA rate (on furnishing the alternative particulars).
Significance: The leading authority that the procedural section 206AA yields to the treaty — followed across High Courts and Tribunals.
Nagarjuna Fertilizers & Chemicals Ltd. v. ACIT (ITAT Hyderabad, Special Bench) and the consistent line
Principle: A Special Bench and a consistent line of authority hold that the beneficial DTAA rate prevails over section 206AA for non-residents without PAN; the legislative response (the proviso to section 206AA and Rule 37BC) relaxes the PAN requirement for non-residents furnishing prescribed alternative documents.
Use: Confirms the settled position and the documentary relaxation for non-residents.
Cluster 2 — Operation among residents (cognate)
Full rigour for residents; certificate/declaration barred without PAN
Principle: For residents, the absence of a PAN attracts deduction at the higher/20% rate, and neither a section 197 lower-deduction certificate nor a section 197A declaration can be given effect without a PAN.
Use: States the strong compliance effect of section 206AA where no treaty is involved.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 206AA — Requirement to Furnish Permanent Account Number (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The PAN-enforcement provision; the DTAA-override question settled against the Revenue.
Finance Act, 2026: No amendment.
Mechanism: Absence of PAN attracts deduction at the higher of the specified rate, the rate in force, or 20%; but a more beneficial DTAA rate prevails for non-residents (section 90(2); Rule 37BC), and section 197/197A relief is unavailable without PAN.
Litigation profile: Litigated and settled on the key point: section 206AA does not override a DTAA (Danisco India).
A. SECTION COMMENTARY
Section 206AA is the PAN-enforcement provision. It provides that any person entitled to receive a sum on which tax is deductible must furnish his Permanent Account Number to the deductor, failing which tax is to be deducted at the higher of the rates specified in the relevant provision, the rates in force, or twenty per cent (and, for certain payments, a higher specified rate). It overrides the other provisions of the Act for this purpose, and a certificate under section 197 cannot be granted, nor a declaration under section 197A accepted, without a PAN. Its object is to make PAN-quoting effectively mandatory by attaching a punitive default rate to its absence.
The collision with tax treaties — section 206AA does not override a DTAA
The most important and most litigated question is whether the 20% default rate in section 206AA can be applied to a non-resident who has no PAN, in preference to a lower rate available under a Double Taxation Avoidance Agreement. The settled answer is that it cannot: a DTAA, given primacy by section 90(2) where more beneficial, prevails over the procedural section 206AA, so a non-resident entitled to a treaty rate is to be taxed at that rate even without a PAN (subject to furnishing the alternative documents). The legislature responded with a proviso and Rule 37BC, relaxing the PAN requirement for non-residents who furnish prescribed alternative particulars (name, address, TRC, tax identification number).
Reach among residents and the certificate/declaration bar
For residents, section 206AA operates with full rigour: no PAN means deduction at the punitive rate, and the section 197 certificate and section 197A declaration routes are closed without a PAN. The provision is thus a strong compliance lever, tempered (for non-residents) only by the treaty-primacy principle and the Rule 37BC relaxation.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
206AA. (1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
(i) at the rate specified in the relevant provision of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of twenty per cent:
Provided that where the tax is required to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words "twenty per cent", the words "five per cent" had been substituted:
Provided further that where the tax is required to be deducted under section 194Q, the provisions of clause
(iii) shall apply as if for the words "twenty per cent", the words "five per cent" had been substituted.
(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.
(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).
(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.
(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.
(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.
(7) The provisions of this section shall not apply to a non-resident, not being a company, or to a foreign company, in respect of—
(i) payment of interest on long-term bonds as referred to in section 194LC; and
(ii) any other payment subject to such conditions as may be prescribed.
C. AUTHORITIES
The authorities establish that section 206AA, being procedural, does not override a more beneficial DTAA rate for a non-resident without PAN. The leading High Court decision is set out. Citations are web-verified.
Cluster 1 — Section 206AA does not override a DTAA
Danisco India (P) Ltd. v. Union of India (2018) 404 ITR 539 (Del)
Issue: Whether tax on a payment to a non-resident without PAN must be deducted at 20% under section 206AA, or at the lower rate available under the applicable DTAA.
Held: Section 206AA does not have an overriding effect over the DTAA; by virtue of section 90(2) the more beneficial treaty rate applies, so TDS on a payment to a non-resident without PAN is to be made at the DTAA rate (on furnishing the alternative particulars).
Significance: The leading authority that the procedural section 206AA yields to the treaty — followed across High Courts and Tribunals.
Nagarjuna Fertilizers & Chemicals Ltd. v. ACIT (ITAT Hyderabad, Special Bench) and the consistent line
Principle: A Special Bench and a consistent line of authority hold that the beneficial DTAA rate prevails over section 206AA for non-residents without PAN; the legislative response (the proviso to section 206AA and Rule 37BC) relaxes the PAN requirement for non-residents furnishing prescribed alternative documents.
Use: Confirms the settled position and the documentary relaxation for non-residents.
Cluster 2 — Operation among residents (cognate)
Full rigour for residents; certificate/declaration barred without PAN
Principle: For residents, the absence of a PAN attracts deduction at the higher/20% rate, and neither a section 197 lower-deduction certificate nor a section 197A declaration can be given effect without a PAN.
Use: States the strong compliance effect of section 206AA where no treaty is involved.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.