After section 206A of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2010, namely:—
"206AA. Requirement to furnish Permanent Account Number.—(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
(i ) at the rate specified in the relevant provision of this Act; or
(ii ) at the rate or rates in force; or
(iii ) at the rate of twenty per cent.
(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.
(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).
(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.
(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.
(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.".
As per the above tax has to be deducted @ 20% in case the deductee does not provide PAN.
However Recently, the Pune Bench of the Income-tax Appellate Tribunal (Tribunal), in the case of Serum
Institute of India Limited (Serum or Taxpayer), held that section 206AA of the Income-tax Act, 1961
(the Act) would not override provisions of a Double Taxation Avoidance Agreement (DTAA) to the
extent that the latter is more beneficial to a taxpayer.
Held in "Dy.DIT v. Serum Institute of India Limited [TS-158-ITAT-2015(PUN)]"
Hence as per ITAT judgement tax treaty override section 206AA and tax has to be withhed @ 10% ( being most beneficial to the deductee in the present case).