Section 206AA

Section 206AA — the law in short

What the courts have decided on section 206AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Danisco India P Ltd v Union of India High CourtHelps taxpayer
  My overseas vendor has no Indian PAN — must I withhold 20 per cent under section 206AA when the treaty caps the rate at 10 per cent?
  No. The Delhi High Court held on 5 February 2018 that section 206AA, as it stood, must be read down: where the payee operates from a territory whose government has a double taxation avoidance agreement with India, the rate of deduction is the rate the treaty dictates, not 20 per cent. The petitioner remitted fees for technical services to a Singapore company with no Indian PAN; Article 12 of the India-Singapore treaty caps the tax at 10 per cent. Following Azadi Bachao Andolan, the Court held the treaty takes primacy, and noted that Parliament had itself softened the provision by substituting section 206AA(7) with effect from 1 June 2016.
• Naresh Bhavani Shah (HUF) v CIT High CourtHelps taxpayer
  The HUF's money was invested in the karta's own name, so the TDS certificate and the 26AS entry carry his individual PAN. The HUF offered the interest to tax and the karta claimed no credit. The department says PAN mismatch, no credit. What now?
  The credit was directed to be given to the HUF. The Court held that the ordinary route is Rule 37BA(2) - the deductee files a declaration with the deductor, and the deductor issues the certificate in the name of the person entitled to credit - and that this procedure must invariably be completed before credit can be claimed where the certificate shows someone else's name and PAN. But it also held there is no dearth of power in the department to give credit in a genuine case, and on these special facts it directed credit on the karta filing an affidavit that the money and the income were not his and that he had claimed no credit.
• A. Kowsalya Bai v Union of India High CourtHelps taxpayerValidity unconfirmed
  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.
• Sanchit Gupta v DCIT (CPC), TDS ITATHelps taxpayerValidity unconfirmed
  I bought a flat and deducted 1 per cent under s.194-IA. CPC has raised a 20 per cent short-deduction demand because the seller's PAN was inoperative for want of Aadhaar linking. The seller has since linked it. Is there any way out?
  Yes, but not the one most people reach for. The Delhi Bench held that the assessee fell outside the CBDT relief circulars on his dates, and that subsequent linking does not retrospectively cure the position. It nonetheless directed that no s.206AA liability be cast on him if the seller is shown to have declared the sale in her return and paid the tax, applying the Ansal Landmark principle by analogy, and remitted the matter for verification — observing that the department was equally responsible for not red-flagging inoperative PANs in its own system.
• Statutory position — s.206AB and s.206CCA omitted, and s.206C(1H) disapplied, from 1 April 2025 CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  Do I still have to run the compliance check and deduct at the higher non-filer rate, and does my client still have to collect TCS on his sales of goods?
  No to both, for anything on or after 1 April 2025. Section 206AB and section 206CCA were omitted by the Finance Act 2025 with effect from 1 April 2025 and no longer exist. Section 206C(1H) has not been omitted from the statute book, but a third proviso inserted by the Finance Act 2025 provides that nothing contained in that sub-section shall apply from 1 April 2025, and the department's own guidance states that the provisions of s.206C(1H) are not applicable from that date and that s.194Q applies to the sale of goods.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.