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

Created by Product Content Team, Modified on Mon, 1 Jul at 10:51 AM 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.


Click here to subscribe to our help videos

Related Links:

Video - To watch the video PAN updation, click here.

FAQs - To read more FAQs about PAN, click here.

Documentation - To read more about the PAN page, click here.

Product Update - To read about the product update, click here.


Was this article helpful?

That’s Great!

Thank you for your feedback

Sorry! We couldn't be helpful

Thank you for your feedback

Let us know how can we improve this article!

Select at least one of the reasons
CAPTCHA verification is required.

Feedback sent

We appreciate your effort and will try to fix the article