Rate for DTA

[KRISHNAMURTHY S P]

Newly inserted Section 206AA requires every payee of sum which attract TDS, furnish PAN. Is it applicable to Non Resident Payee also. Suppose DTA rates is less than 20%, whether DTA rate Prevails or 20%?

[Surender Gupta]

Section 90 of the Income Tax Act, 1961 provides provision relating to DTAA and sub-section (2) says that assessee is entitled to avail the most beneficial provisions from Income Tax Act or DTAA. But, the provisions of section 90 is not an overriding section like section 206AA. Since section 206AA is an overriding section and conditional one. The provisions of section 206AA are applicable only if the receipient fails to provide the PAN number. However, I think that it is matter of discussion that what is the scope of section 206AA. Once interpretation is that the rates prescribed in the Income Tax or Finance Act for the purpose of TDS shall be increased to 20% if the rate of TDS is lower than 20%. After deciding such rate as per the provisions of Income Tax and application of section 206AA, the provisions of Section 90 would be applied and the minimum of two rates i.e. DTAA rate and 20% rate would be applied.

[Anuj Gupta]

Yes provisions of section 206AA are applicable to non resident payees also. The rates in respect of INTEREST,ROYALTY,Fee for Technical Services (as per provisions of Income Tax Act) shall be taxable at the rate of 21.115%. Also the chargeability under the provisions of Income Tax Act or DTAA shall be needed to be checked before coming to question of 206AA

AI Summary

PAN requirement under section 206AA can trigger higher TDS rates, affecting DTAA relief for non-resident payees. The PAN-based withholding obligation applies when a payee fails to furnish PAN, including non-residents; in that event the payer must apply a higher statutory TDS rate, and only thereafter may DTAA provisions be examined with a view to applying the more favourable rate between the adjusted domestic withholding rate and the treaty rate.