20% salary deduction as tax if employee doesn't share PAN, Aadhaar: IT department

Trouble and hardship is looming for those earning ₹2.5 lakh per annum but have not provided PAN and Aadhaar details to the employer.This rule is aimed at keeping a close eye on TDS payments and revenue earned by this segment. In the financial year 2018-19, revenue from this segment amounted to around 37 per cent of the total direct tax collection.

This is consequent to the Income Tax Department asking employers to deduct 20 per cent salary as Tax Deducted at Source (TDS) from all employees who fail to furnish PAN and Aadhaar details. In case your salary attracts a 30 per cent tax rate, your employer will compute the average tax rate, i.e, employee's total tax liability divided by total annual income. If the average tax rate turns out to be 20 per cent, the TDS would be 20 per cent.

This rule was formulated by the Central Board of Direct Taxes (CBDT) and came into effect on January 16. The rule will be applicable to those who earn more than ₹2.5 lakh per annum.

The rule further says, employees will be exempted from paying education and health cess at 4 per cent rate in case the deduction made is at a higher rate. The CBDT says the lack of PAN or Aadhaar details is creating problems in giving credit.