Section 206AA — Higher TDS Without PAN: 20% Rate Explained

Updated: 3 June 2026 | Income Tax Act, 1961 | FY 2025-26 (AY 2026-27)

Section 206AA requires deductors to deduct TDS at the higher of: (a) applicable TDS rate, (b) rate in force, or (c) 20% whenever the payee (deductee) does NOT furnish a valid PAN. In practice, this means a minimum 20% TDS without PAN. Applies to all TDS sections — salary, interest, professional fees, dividend, rent. Form 15G/15H cannot be submitted without PAN. NRI exception: DTAA country residents may provide foreign TIN instead.

MIN 20%

Section 206AA: TDS at higher of normal rate or 20% when PAN not furnished
Example: Professional fee normally 10% TDS. Without PAN: 20% TDS. Salary at 5% slab rate. Without PAN: 20% TDS. Prevention: furnish valid, PAN-Aadhaar linked PAN to every deductor.

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Inoperative PAN triggers 206AA: PAN that is not linked to Aadhaar is treated as “inoperative.” From May 2023, deductors must deduct TDS at 20% on payments to persons with inoperative PAN, as if no PAN was furnished. Link your PAN to Aadhaar at incometax.gov.in immediately to avoid this.

Section 206AA — Normal Rate vs Higher Rate Comparison

TDS Section	Payment Type	Normal TDS Rate	Section 206AA Rate (No PAN)
192	Salary	Applicable slab rate	Min 20%
194A	Bank interest	10%	20%
194	Dividend (company)	10%	20%
194K	MF dividend	10%	20%
194C	Contractor (individual)	1%	20%
194C	Contractor (company)	2%	20%
194J	Professional fees	10%	20%
194J	Technical services	2%	20%
194I	Rent (land/building)	10%	20%
194H	Commission / brokerage	5%	20%
194-IA	Property purchase (buyer)	1%	20%
195	NRI payments (no DTAA docs)	20% + surcharge	20% minimum

Section 206AA — Key Rules at a Glance

Scenario	Rule	TDS Treatment
PAN furnished, active & Aadhaar-linked	Normal	Normal TDS rate applies
PAN not furnished	Sec 206AA	Higher of normal rate or 20%
PAN inoperative (Aadhaar not linked)	Sec 206AA	Higher of normal rate or 20%
Form 15G/15H without PAN	Invalid — 206AA overrides	20% TDS still applies
NRI with DTAA + TRC + Form 10F + foreign TIN	Sec 206AA(7) exemption	DTAA rate applies (not 20%)
NRI without DTAA docs and no PAN	Sec 206AA applies	20% or 2× normal rate
Lower TDS certificate (Sec 197)	Applied after PAN verification	Specified lower rate

Refund of excess 206AA TDS: If 20% TDS was deducted but your actual tax liability is lower (e.g., your tax slab is 5%), you can claim the excess as a refund by filing your ITR. Enter gross income, compute actual tax, and the difference between TDS deducted and actual tax liability is refunded to your bank account. Always file ITR to reclaim excess TDS — TDS credit in Form 26AS is the only documentary proof required.

Frequently Asked Questions

How do I avoid 20% TDS under Section 206AA?

The only way to avoid higher TDS under Section 206AA is to furnish a valid Permanent Account Number (PAN) to the deductor (employer, bank, company paying you) before the payment is made. Ensure your PAN is correctly registered with your bank (for interest TDS), with your employer (for salary TDS), and with companies whose securities you hold (for dividend TDS). Once PAN is provided, TDS reverts to the normal applicable rate. Additionally, ensure your PAN is linked to your Aadhaar — an inoperative or unlinked PAN is treated as non-furnishing of PAN, triggering Section 206AA rates. Link PAN-Aadhaar at incometax.gov.in to keep PAN active.

Can I get a PAN quickly to avoid 20% TDS on an upcoming payment?

Yes. You can apply for PAN online via NSDL (Protean) or UTIITSL portals using Form 49A (Indian residents) or Form 49AA (foreign nationals). The e-PAN (electronic PAN) is issued digitally within 48-72 hours for Aadhaar-based applications. Once you receive your e-PAN, immediately submit it to the deductor. If TDS has already been deducted at 20% before you provided PAN, the excess TDS (over the normal rate) can be claimed as a refund when filing your ITR for that financial year. The refund will be credited to your bank account after ITR processing. Keep all correspondence showing the date PAN was provided to the deductor, as documentation for any dispute.

Does Section 206AA apply to NRI or foreign payments?

Section 206AA is partially relaxed for non-residents who do not have Indian PAN. Under Section 206AA(7), NRIs/foreign entities receiving income covered by a DTAA (Double Taxation Avoidance Agreement) need not compulsorily provide Indian PAN — instead, they can provide: (1) Tax Residency Certificate (TRC) from their home country, (2) Form 10F self-declaration, and (3) their foreign Tax Identification Number (TIN). If all three are provided, TDS is deducted at the applicable DTAA rate and 206AA higher rate is not triggered. Without these documents, Section 206AA applies and TDS is at 20% or twice the normal rate, whichever is higher. This applies to sections like 194E (non-resident sportsmen) and 195 (general non-resident payments).

Can I get a refund of excess TDS deducted due to Section 206AA?

Yes, excess TDS deducted due to Section 206AA can be fully reclaimed as a refund. File your Income Tax Return (ITR) for the financial year in which the excess TDS was deducted. In the ITR, enter the gross income and compute tax at the correct rate. The TDS credit from Form 26AS is automatically considered. If actual tax liability is lower than TDS deducted (due to 206AA rate being higher than your slab rate), the difference is computed as a refund. The IT department processes the refund and credits it to your pre-validated bank account. Typical refund processing time: 2-4 weeks after ITR verification. Always verify TDS credit in Form 26AS matches the certificates received before claiming refund.

Who deducts higher TDS under Section 206AA?

Every person who is required to deduct TDS under Chapter XVII-B of the Income Tax Act must apply Section 206AA if the deductee (payee) does not furnish a valid PAN. This includes: employers (salary TDS under Section 192); banks (interest TDS under Section 194A); companies paying dividends (Section 194); contractors (Section 194C); those paying professional fees (Section 194J); tenants paying rent above ₹2.4L per year (Section 194-I); buyers of property above ₹50L (Section 194-IA); and all other TDS deductors. It is the deductor's legal responsibility to collect PAN from the payee and deduct at 20% if PAN is not provided. Failure to apply 206AA can result in the deductor being liable for the shortfall in TDS plus interest and penalty.

TDS Rate Chart 2025-26 TDS on Dividend TDS Return Filing ITR Filing NRI Taxation IT Notice Reply

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