How is income tax calculated for employees with an inoperative PAN?

Created by Product Content Team, Modified on Thu, 19 Jun at 5:47 PM by Product Content Team

As per the Income Tax Act, it is mandatory to link the PAN with Aadhaar. Failing to link these two results in the PAN becoming inoperative.

Note: TDS computation for inoperative PAN is effective from June 2024 payroll onwards.

When a PAN is inoperative, TDS is deducted at the rate of 20% or higher.

Here's how to compute it:

Step 1: Compute Taxable Salary

Include Basic Salary, HRA, Allowances, and Bonuses.
Subtract exemptions and eligible deductions, such as HRA, Standard Deduction, and deductions under Section 80C.

Step 2: Calculate TDS

Apply a 20% TDS rate or a higher rate to the taxable income resulting from an inoperative PAN.

Example:

Taxable Income after Deductions: ₹6,00,000
TDS at 20%: ₹1,20,000

Note: No cess is added when tax is computed at the rate of 20% due to an inoperative PAN. Only the flat TDS rate is applicable.

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