My income is below the taxable limit and I filed Form 15G, but the finance company says it cannot act on it without a PAN. Can section 206AA be applied to me?
No. The Karnataka High Court read section 206AA down as inapplicable to persons whose income is below the taxable limit. Section 139A obliges only certain persons to obtain a permanent account number, and a person with income below the exemption limit is not among them. Section 206AA, which invalidates a section 197A declaration filed without a PAN, runs contrary to that earlier provision and, so applied, is discriminatory. The Court held that banking and financial institutions must not insist on a PAN from such small investors, adding that any evasion or concealment can be dealt with under the penal provisions. Section 206AA continues to apply to those above the taxable limit.
Decided by the High Court (High Court of Karnataka at Bangalore - Justice Huluvadi G. Ramesh) on 2012-06-05, reported as (2012) 346 ITR 156; 2012 (3) AIR Kar R 585; (2012) 3 KCCR 2471. It bears on section 206AA, section 139A, section 197A, section 193 of the Income Tax Act 1961, in TDS Defaults and Refunds, Interest & Condonation matters.
This is the only High Court decision most practitioners can point to for a client whose Form 15G or 15H is being refused for want of a PAN, and it is the argument to run for small depositors, pensioners and agriculturists whose returns are being cut by twenty per cent on income that is not taxable at all. Its reasoning is that section 206AA cannot be read to override section 139A and impose a PAN obligation on people the Act deliberately leaves outside the return-filing net; the mischief the provision aims at can be met by the penalty machinery instead. Two limits should be stated plainly to a client. The Court read the provision down rather than striking it down, and it did so in a short order that leaves several things unexplained. And the position for later years turns on amendments to section 206AA and to the rules on Form 15G and 15H, which need to be checked before the argument is used.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Three petitioners, described as small investors, had placed their savings with two finance companies to earn a better return, and had no source of income other than those investments. Their income did not exceed the maximum amount not chargeable to tax, so they were not persons required by section 139A(1) to obtain a permanent account number, and they filed Form 15G under section 197A so that no tax would be deducted under section 193. The finance companies told them that the declarations could not be accepted unless a permanent account number was communicated, relying on section 206AA, inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010. Sub-section (1) of that provision requires a deductee to furnish his permanent account number to the deductor, failing which tax is to be deducted at the highest of the rate in the relevant provision, the rate in force, or twenty per cent; sub-section (2) makes a declaration under section 197A invalid without it; and sub-section (3) then requires deduction under sub-section (1). The petitioners came under Articles 226 and 227 seeking a declaration that section 206AA is unconstitutional and violative of Article 14, contending that it compels persons with no assessable income to obtain a permanent account number and causes them great hardship.
The petitions were allowed. Section 206AA was made inapplicable to, and read down in relation to, persons whose income is less than the taxable limit under the Finance Act. It continues to apply to persons whose income is above that limit. Banking and financial institutions were directed not to insist upon a permanent account number from small investors such as the petitioners, or from persons who intend to open an account with them. The provision was not struck down.
The Court set section 139A(1) beside section 206AA. Section 139A obliges a person to apply for a permanent account number only where his total income exceeded the maximum amount not chargeable to tax, or where his business turnover is likely to exceed the prescribed figure, or where he must furnish a return under section 139(4A), or where he is an employer required to file a fringe benefit return. A person below the taxable limit is outside all of these, and need neither hold a permanent account number nor file a return. The intent of section 206AA, by contrast, is to make a permanent account number a condition of every transaction with a bank or financial institution, small depositors included. That runs contrary to what the legislature had provided in section 139A, which has been in force since 1991 and stands the test of Article 14. A later provision that overrides it in this way appears discriminatory. The Court accepted the practical point that poor and uneducated persons find it difficult to approach the Income Tax Department for a permanent account number, and that such savings placed in banks and financial institutions strengthen the country's economy, so a compulsory requirement would discourage small investors. It acknowledged that Parliament's object is to bring as many persons as possible within the tax net, but held that where the Act itself grants an exemption up to the taxable limit, it cannot insist that those below it compulsorily obtain a number; evasion or concealment, if detected, can be dealt with under the penal provisions.
in view of the specific provision - S.139A of the Act, S.206AA of the Act is made inapplicable to persons and read down from the Statute for whose income is less than the taxable limit as per the Finance Act, 1991.
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Handle my notice → Ask a CA on WhatsAppNo. The Karnataka High Court read section 206AA down as inapplicable to persons whose income is below the taxable limit. Section 139A obliges only certain persons to obtain a permanent account number, and a person with income below the exemption limit is not among them. Section 206AA, which invalidates a section 197A declaration filed without a PAN, runs contrary to that earlier provision and, so applied, is discriminatory. The Court held that banking and financial institutions must not insist on a PAN from such small investors, adding that any evasion or concealment can be dealt with under the penal provisions. Section 206AA continues to apply to those above the taxable limit. This was decided by the High Court (High Court of Karnataka at Bangalore - Justice Huluvadi G. Ramesh) and bears on section 206AA, section 139A, section 197A, section 193 of the Income Tax Act 1961. It is reported as (2012) 346 ITR 156; 2012 (3) AIR Kar R 585; (2012) 3 KCCR 2471. This is the only High Court decision most practitioners can point to for a client whose Form 15G or 15H is being refused for want of a PAN, and it is the argument to run for small depositors, pensioners and agriculturists whose returns are being cut by twenty per cent on income that is not taxable at all. Its reasoning is that section 206AA cannot be read to override section 139A and impose a PAN obligation on people the Act deliberately leaves outside the return-filing net; the mischief the provision aims at can be met by the penalty machinery instead. Two limits should be stated plainly to a client. The Court read the provision down rather than striking it down, and it did so in a short order that leaves several things unexplained. And the position for later years turns on amendments to section 206AA and to the rules on Form 15G and 15H, which need to be checked before the argument is used. If it applies to you, the first step is this: Where the client's income is genuinely below the exemption limit, file Form 15G or 15H and cite this judgment if the deductor refuses to act on it for want of a PAN.
Three petitioners, described as small investors, had placed their savings with two finance companies to earn a better return, and had no source of income other than those investments. Their income did not exceed the maximum amount not chargeable to tax, so they were not persons required by section 139A(1) to obtain a permanent account number, and they filed Form 15G under section 197A so that no tax would be deducted under section 193. The finance companies told them that the declarations could not be accepted unless a permanent account number was communicated, relying on section 206AA, inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010. Sub-section (1) of that provision requires a deductee to furnish his permanent account number to the deductor, failing which tax is to be deducted at the highest of the rate in the relevant provision, the rate in force, or twenty per cent; sub-section (2) makes a declaration under section 197A invalid without it; and sub-section (3) then requires deduction under sub-section (1). The petitioners came under Articles 226 and 227 seeking a declaration that section 206AA is unconstitutional and violative of Article 14, contending that it compels persons with no assessable income to obtain a permanent account number and causes them great hardship. The matter was decided on 2012-06-05 by the High Court (High Court of Karnataka at Bangalore - Justice Huluvadi G. Ramesh). On those facts the High Court held as follows. The petitions were allowed. Section 206AA was made inapplicable to, and read down in relation to, persons whose income is less than the taxable limit under the Finance Act. It continues to apply to persons whose income is above that limit. Banking and financial institutions were directed not to insist upon a permanent account number from small investors such as the petitioners, or from persons who intend to open an account with them. The provision was not struck down.
The Court set section 139A(1) beside section 206AA. Section 139A obliges a person to apply for a permanent account number only where his total income exceeded the maximum amount not chargeable to tax, or where his business turnover is likely to exceed the prescribed figure, or where he must furnish a return under section 139(4A), or where he is an employer required to file a fringe benefit return. A person below the taxable limit is outside all of these, and need neither hold a permanent account number nor file a return. The intent of section 206AA, by contrast, is to make a permanent account number a condition of every transaction with a bank or financial institution, small depositors included. That runs contrary to what the legislature had provided in section 139A, which has been in force since 1991 and stands the test of Article 14. A later provision that overrides it in this way appears discriminatory. The Court accepted the practical point that poor and uneducated persons find it difficult to approach the Income Tax Department for a permanent account number, and that such savings placed in banks and financial institutions strengthen the country's economy, so a compulsory requirement would discourage small investors. It acknowledged that Parliament's object is to bring as many persons as possible within the tax net, but held that where the Act itself grants an exemption up to the taxable limit, it cannot insist that those below it compulsorily obtain a number; evasion or concealment, if detected, can be dealt with under the penal provisions. In the words reproduced by the source cited on this page: "in view of the specific provision - S.139A of the Act, S.206AA of the Act is made inapplicable to persons and read down from the Statute for whose income is less than the taxable limit as per the Finance Act, 1991."
It was decided by the High Court on 2012-06-05 and is reported as (2012) 346 ITR 156; 2012 (3) AIR Kar R 585; (2012) 3 KCCR 2471. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 206AA, section 139A, section 197A, section 193, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The petitions were allowed. Section 206AA was made inapplicable to, and read down in relation to, persons whose income is less than the taxable limit under the Finance Act. It continues to apply to persons whose income is above that limit. Banking and financial institutions were directed not to insist upon a permanent account number from small investors such as the petitioners, or from persons who intend to open an account with them. The provision was not struck down. It arises in TDS Defaults and Refunds, Interest & Condonation matters, on section 206AA, section 139A, section 197A, section 193 of the Income Tax Act 1961, and was decided by High Court of Karnataka at Bangalore - Justice Huluvadi G. Ramesh. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep evidence that the income is below the taxable limit; the whole relief turns on that fact, and section 206AA admittedly applies to everyone above the limit. Check the current text of section 206AA and the rules governing Forms 15G and 15H before relying on this decision, and whether the Board has issued anything on the point - it was decided in 2012 on the provision as introduced from 1 April 2010. Where tax has already been deducted at twenty per cent on non-taxable income, the practical remedy is a refund claim in a return, so file one.
Searched for later treatment; none was found. That is not the same as a source affirming it. The whole order was read; it is short and runs to its operative allowing of the petitions, reading section 206AA down so that it does not operate against a person whose income is below the taxable limit and who files a declaration under section 197A. A citator search returns nine citing documents, and on opening them none is an application of this judgment. Eight are materially identical orders of the Jaipur Bench of the Tribunal of 8 November 2023 in the Conservator of Forest and Field Tiger Project Sariska appeals, ITA Nos. 450, 466 and 470-475/JP/2023, where this judgment is recorded at paragraph 13 as counsel's citation and the matter is sent back to the Assessing Officer without the point being decided. The ninth is ITO, Jammu v. Baba Ghulam Shah Badshah University, Amritsar Bench, ITA No. 120(Asr)/2017, 16 November 2018: there the reliance on this judgment, and the words 'squarely covered by the decision of the Hon'ble High Court', sit inside the Tribunal's narration of the Commissioner (Appeals)'s order, and although the Revenue's appeal was dismissed the Bench recorded no reasoning of its own. Nothing overruling or doubting the judgment was found. Whether the Union appealed is still not established. This is a 2012 decision on section 206AA as first introduced, and the provision has been added to since in ways not verified here, so the section must be read as it stood for the year in hand. The Income-tax Act, 2025 does not take the reading down away for those years: section 536 of that Act saves the Income-tax Act, 1961 for every tax year beginning before 1 April 2026, and this library is written against the 1961 Act and governs assessment years up to and including AY 2026-27, so a judgment on the 1961 Act is not displaced by the new Act for those years. Two things then have to be checked - what section 206AA said in the years in hand, and, for years from AY 2027-28, how the 2025 Act treats a deductee below the taxable limit who files a declaration. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a short order by a single judge and it leaves loose ends. It says section 139A was "introduced way back in April 1991" and elsewhere refers to "S.139A1(i) of the Act in the year 1995"; I could not reconcile those dates from the text. The operative direction reads down section 206AA by reference to "the taxable limit as per the Finance Act, 1991", which is presumably a slip for the Finance Act in force for the relevant year. The text as harvested contains several typographical corruptions in the extracted statutory provisions - "Chaper XVIIIB" for Chapter XVII-B, "five lakruppes", "Notwithstanding anythging" - which I have read through rather than reproduced. Although the petitions asked for section 206AA to be declared unconstitutional, the Court read it down instead and did not expressly answer the Article 14 challenge as such. The batch line's sections are all in the judgment; section 193 is added from it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petitions were allowed. Section 206AA was made inapplicable to, and read down in relation to, persons whose income is less than the taxable limit under the Finance Act. It continues to apply to persons whose income is above that limit. Banking and financial institutions were directed not to insist upon a permanent account number from small investors such as the petitioners, or from persons who intend to open an account with them. The provision was not struck down.
TaxSphere, “A. Kowsalya Bai v Union of India”, https://taxnotice.vittsphere.com/caselaw/case/a-kowsalya-bai-v-union-of-india/ (validity last checked 2026-09-16)
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My bank has deducted tax on my fixed deposit interest and I was told the limit had gone up. My father is a senior citizen and his bank deducted too. There is also a loan I took from a friend on which I pay interest, and a co-operative society that pays me interest on a deposit. Who exactly has to deduct under section 194A, on what amount, and what are the limits as they stand now?
My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
My non-resident payee has no PAN. Must I deduct at twenty per cent, and is there any prescribed alternative?
My non-resident payees had no PAN and the treaty rate is ten per cent. The officer says s.206AA has a non obstante clause and overrides everything, so twenty per cent it is. Is there a Special Bench on this?
