Salaried taxpayers will now face the prospect of paying tax at the highest applicable rate of 30 per cent, irrespective of their income level, if they do not have a Permanent Account Number from the income tax department.
The Kelkar panel on direct taxes, in its final report, has said where a payee receiving salary fails to furnish his Permanent Account Number, tax will be deducted at a flat rate of 30 per cent.
For those who are non-salaried, the applicable tax rate for those without Permanent Account Number will be either twice their normal tax rate or 30 per cent, whichever is lower.
According to the panel members, the stick is necessary to ensure that the projected identification of the tax payers within the country becomes a reality within the shortest possible time to develop a national tax information network.
The measure, however, ensures that the onus of getting a Permanent Account Number will shift to the income tax assesses instead of the revenue department.
While the rate of allotment of Permanent Account Number has accelerated over the years, there is still a huge backlog.
Out of the total 25 million returns submitted to the department in 2001-02, PAN has been allotted to about 20 million people.
The final report of the task force has put a major emphasis on modernisation of the tax machinery to beef up revenue generation and reduce interface between tax payers and the department.
Since over 50 per cent of income tax is deducted at source, the report has made several observations to ensure that the revenue department does not lose out on it.
Accordingly, it has recommended modification of the Income Tax Act to allow tax deduction at source for all payments, irrespective of the amount of payment, which currently has a threshold of Rs 500.
Moreover, it says if the payee is able to provide a self-declaration saying his total income tax liability, inclusive of everything, will be nil, and quotes his PAN, there will be no tax deductions.
Briefing reporters, Vijay Kelkar said Finance Minister Jaswant Singh had said the recommendations on modernisation of tax administration would be taken up immediately, even without waiting for the final report to be accepted as there were no dispute on them.