Cess on tds rate u/s 206aa

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CA Mayur Todmal (Querist)
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01 March 2016 Hello everyone.. One of my client is required to deduct tax on foreign remittance. but the receiver party don't have pan hence payer is deducting tax @ 20% as per 206AA. Please advice me whether cess @ 3 % on above 20% is applicable or not as the payment is made outside of India. please answer...

CA Mayur Todmal

CA Mayur Todmal (Querist)
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02 March 2016 no single reply...on this query

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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19 July 2024 Under Section 206AA of the Income Tax Act, if a person receiving income does not provide their Permanent Account Number (PAN) to the deductor (payer), then the deductor is required to deduct tax at a higher of the following rates:

1. The rate specified in the relevant provision of the Income Tax Act.
2. The rate or rates in force.
3. At the rate of 20%.

In your case, since the recipient does not have a PAN, the tax deduction rate under Section 206AA would be 20%. This rate includes the applicable cess, which is 3% of the tax amount.

To clarify:

- The rate of 20% includes the basic tax plus cess. Therefore, when tax is deducted at 20% under Section 206AA, it already accounts for the cess.
- There is no additional cess of 3% applicable on top of the 20% deduction rate. The 20% rate itself includes the cess component.

Hence, in your scenario where tax is deducted at 20% under Section 206AA, there is no further cess applicable on the deducted amount. The 20% deduction rate comprehensively covers both the basic tax and the cess.

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