The Central Board of Direct Taxes has circulated a notification that said that a 20 per cent levy will be imposed by the tax deducting entity if PAN is not quoted in transactions that involve a tax deduction at source. The new law is to take effect from the next fiscal year.

A PAN (permanent account number) is issued to all entities with taxable income and is used as an identification number.

“Tax at the higher prescribed rate or 20% will be deducted on all transactions liable to TDS where the PAN of the deductee is not available,” said Finance ministry in a statement.

The change is law will affect small contractors, small businesses, professionals and investors who earn interest from fixed deposits significantly as the tax deduction at source (TDS) rate for them ranges from 1% to 10%.

The ministry further indicated that all assesses will have to quote their PAN in their correspondences, bills, vouchers and other documents sent to each other.

The law is also applicable to NRIs relating to the payments or remittances liable to TDS. The ministry has advised non-residents to obtain a PAN by March 31, 2010 and notify it to their tax deducting entity before tax is deducted on transactions after that date.

The assesses who do not have PAN will not be issued certificates from the assessing officer about lower or no tax liability, the statement further noted.

The notification is to enable better compliance with TDS norms. The rate of TDS varies depending upon transitions however it is below 20%. The effort is also seen as a step from the government to increase revenue collections.