Legal and Practical Implications of PAN Non-Compliance : Clause 397(2) of the Income Tax Bill, 2025 Vs. Section 206CC of the Income Tax Act, 1961

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....prove traceability of transactions, and curb tax evasion by mandating the furnishing of PAN by deductees and collectees, and prescribing higher rates of TDS/TCS in the event of non-compliance. This commentary provides a detailed and comparative analysis of Clause 397(2) and Section 206CC, examining their objectives, key provisions, practical implications, and the legal and policy rationale underlying their enactment. The analysis further explores the similarities, differences, and potential issues that may arise under the new legislative regime proposed in the Income Tax Bill, 2025. Objective and Purpose The primary legislative intent behind both Clause 397(2) and Section 206CC is to enforce the quoting and furnishing of PAN in all trans....

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....tax. The provision is overriding in nature, operating "irrespective of anything contained in any other provision of this Act." 2. Consequences of Non-Furnishing of PAN Sub-clause (b) of Clause 397(2) prescribes stringent consequences for failure to furnish PAN: * For TDS: Tax shall be deducted at the higher of the following rates: * At the rate specified in the relevant provision of the Act; * At the rate or rates in force; * At the rate of 5% (where tax is required to be deducted u/s 393(1) [Table: Sl. No. 8(ii) or 8(v)]); or * At the rate of 20% in any other case. * For TCS: Tax shall be collected at the higher of: * Twice the rate specified in the relevant provision of the Act; or * At the rate of 5%. However, the rate....

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....ctees and collectees must furnish their PAN to the deductor or collector, and both parties must indicate the PAN in all bills, vouchers, correspondence, and other documents exchanged. 7. Key Differences and Additional Features While Clause 397(2) consolidates and expands upon the existing requirements u/s 206CC, it also introduces certain new features: * It covers both TDS and TCS, whereas Section 206CC is limited to TCS. * It provides for a specific cap on TDS in the context of rent payments. * It introduces a mechanism for invalidation of declarations and denial of certificates for non-furnishing of PAN. * It prescribes a more detailed regime for documentation and reporting. Practical Implications 1. For Businesses and Collect....

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....ructure * TCS: Both provisions require tax to be collected at the higher of twice the specified rate or 5%, subject to a maximum of 20%. * TDS: Clause 397(2) introduces a nuanced rate structure for TDS: * At the rate specified in the Act; * At the rate or rates in force; * At 5% (for certain payments u/s 393(1)); * At 20% in other cases. This is a significant departure from Section 206CC, which does not address TDS. 3. Exemptions for Non-Residents * Section 206CC: Exempts non-residents without a permanent establishment in India. * Clause 397(2): Provides a more detailed exemption regime, distinguishing between TDS and TCS, and specifying additional cases (e.g., interest on long-term bonds). 4. Treatment of Declarations a....

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....Furnishing PAN For TDS: Higher of specified rates, 5% (for certain cases), or 20%; For TCS: Higher of twice the specified rate or 5%, capped at 20% For TCS: Higher of twice the specified rate or 5%, capped at 20% Exceptions More detailed, including specific payments and non-residents without PE Non-residents without PE in India Declarations and Certificates Invalid unless PAN is furnished; applies to both TDS and TCS Same, but only for TCS Rent Payments Cap Yes, deduction cannot exceed last month's rent No provision PAN in Documents Mandatory for all documents between deductee/collectee and deductor/collector Same Invalid or Incorrect PAN Not explicit, may be prescribed Explicitly deemed as non-furnishi....