Relaxation on the Section 206AA of Income Tax Act, 1961 to be read with Rule 37BC of Income Tax Rules, 1962 – By CBDT Notification

Section-206AA of the Income-tax Act 1961 - 

1. This section overrides all other section of the Income Tax Act.
2. Any person (resident or non-resident) receive any sum or income on which TDS is deductible, then
3. Such  person shall provide PAN No to the person responsible to deduct such tax.
4. If he fails then higher of the following shall be charged

(a)   Rate as applicable for that part of income under Chapter XVIIB (TDS rate )

(b)   Rate in force (rate as specified in the act)

(c)   20% 

Rule-37BC of Income Tax Rules 

In the case of a non-resident, not being a company, or a foreign company (hereafter referred to as ‘the deductee’) and not having permanent account number the provisions of section 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, if the deductee furnishes the details and the documents specified in sub-rule (2) to the deductor. 

Analysis of the Above States of Laws 

1.    This rule is applicable only for Non-resident and who does not have PAN number.

2.    Person having PAN and not providing same then this Rule is not applicable.

3.    Section 206AA of the IT Act, shall not apply mean that tax shall not be deducted at higher in want of PAN.

4.    Although TDS shall be continue to be deducted at the rate specified in the relevant provision of this Act.

5.    This relaxation is given only for payment in nature of Interest, Royalty, FTS and payment on transfer of Capital asset.

6.    Section 206AA of the IT Act, shall continue to apply in case of payment in nature of Salary , Pension, Business profit, Dividend , Director Fees, Artistes and sportspersons or any other payment except Interest, Royalty, FTS and payment on transfer of Capital asset. 

Section 206AA of the IT Act, shall not apply when non-resident provide information as specified in sub-rule-2 of the rule 37BC of the Income-tax Rules.

Now, what will be the requirement of PAN in case of transaction with DTAA or Non-DTAA countries parties?

Check here is a checklist for you -

Sr. No.	Country	Nature of Payment	PAN provide	Tax Rate
1	DTAA	Royalty	No/Yes	In both cases (Yes or No) As per DTAA or IT Act whichever is beneficial to deductee
		Fees for Technical Services (also included fees for included services
		Interest
		Payment on the transfer of Capital asset
		Other	Yes	If provides then Rate as per DTAA or IT Act whichever is beneficial to the deductee
			No	If not provides then Rate as per section 206AA(1)
2	Non-DTAA	Royalty	No/Yes	In both case (Yes or No) Rate applicable as per IT Act under concern section
		Fees for Technical Services (also included fees for included services
		Interest
		Payment on the transfer of Capital asset
		Other	Yes	Rate applicable as per IT Act under concern section.
			No	If not provides then Rate as per section 206AA(1)