New Delhi: Alert for all salaried class! If your annual income is Rs 2.5 lakh or above and you have not furnished your Permanent Account Number (PAN) and Aadhaar details to your employer, it might cost you around 20 per cent of your salary. Yes, you read it right! In a recent notification issued by the Income Tax (IT) Department, all employers have been directed to deduct 20 per cent of employees total salary, in case they fail to provide their PAN and Aadhaar details.

The latest Central Board of Direct Taxes (CBDT) circular, which came into effect on January 16, 2020, will be applicable for all those who earn Rs 2.5 lakh per annum or above.

The new rule by IT department is aimed at keeping a close eye on TDS payments and revenue earned by this segment which amounted to around 37 per cent of the total direct tax collection in Financial Year 2018-19.

As per an 86-page circular issued by the CBDT, employees will have to quote PAN and Aadhaar details compulsorily as per the Section 206-AA of the Income Tax Act.

"Section 206AA in the Act makes furnishing of PAN or Aadhaar number, as the case may be, by the employee compulsory in case of receipt of any sum or income of amount,on which tax is deductible," the CBDT circular said.

The circular clearly mentions that those employees who fail to furnish the required details, the employer is responsible to make deductions either at the tax rate on the employee's salary or 20 per cent or above. However, in case your income is below Rs 2.5 lakh per annum, no tax will be deducted.

Here are some key highlights of CBDT's new circular:

As per CBDT, if the employee fails to produce PAN or Aadhaar card, the employer has been made responsible to make Tax Deducted at Source (TDS) at higher of the following rates:

At the rate specified in the relevant provision of the IT Act

Or, at the rate(s) in force

Or, at a flat 20 per cent rate

TDS is meant to collect income tax of an individual or an entity. Any organisation that makes a payment is required to deduct 'tax at source' in case payment exceeds certain threshold limit fixed by the government.

Clarifying the new rule, the IT department said that lack of PAN or Aadhaar details is creating problems in giving credit.

The calculations:

After several deductions, if the salary attracts approx 20 per cent tax, the TDS rate of 20 per cent will apply. However, in case your salary attracts a 30 per cent tax rate, your employer will compute the average tax rate, which is - your total tax liability divided by total annual income.

Companies are, therefore, advised to collect and provide correct Aadhaar or PAN details of their employees in the TDS statements for their salaries in the Form 24Q, which is for tax deducted from salaries.