No PAN, and the Indian client wants to deduct more

Section 206AA of the 1961 Act was the higher deduction where PAN was not furnished. From 1 April 2026 the higher-rate rule is section 397(2). Rule 217, checked on 26 October 2026, is titled as the conditions under section 397(2)(c) for the higher rate not to apply to a non-resident.

Rule 217(1) says section 397(2)(b)(i) shall not apply to a non-resident, not being a company, or to a foreign company, who has no PAN, in respect of interest, royalty, fees for technical services, dividend, and payments on transfer of any capital asset, if the deductee gives the deductor the details and documents in sub-rule (2).

Those details are: name, email and contact number; the address in the country of residence; a residency certificate from the government of that country if that country's law provides for one; and the tax identification number there, or another unique number by which that government identifies the person.

Rule 217(3) also switches off section 397(2)(b)(i) where the person is not required to apply for a PAN in view of section 262 and the rules under it.

This page does not set out every limb of section 397(2)(b). The 20% figure below is the figure in the 1961 Act case, not a rate this page is inventing for every 2026 payment.

Commissioner of Income Tax (International Taxation and Transfer Pricing) v. Adani Wilmar Ltd, Gujarat High Court, R/Tax Appeal No. 514 of 2024, order dated 10 June 2025, was a group of appeals about short deduction. The company had deducted tax at the DTAA rate, or at the Act rate where that was lower, including where the non-resident recipient had not furnished a PAN. The Revenue treated section 206AA as requiring 20%.

The Court dismissed the Revenue's appeal. It held that section 206AA does not override section 90(2), so where the treaty rate is more beneficial the 20% demand does not replace it. The order follows the same reading as the Bombay High Court in Commissioner of Income Tax (International Taxation) v. Serum Institute of India Ltd and the Delhi High Court in Danisco India Pvt Ltd v. Union of India, both of which the judgment discusses.

That is a decision on the 1961 Act. It is not a judgment on section 159 and section 397(2) of the 2025 Act. Rule 217 is the statutory exception that does not depend on the case: for the payments it names, section 397(2)(b)(i) does not apply when the documents are given.

For a payment Rule 217 covers, give the client the four items in sub-rule (2), and file Form 41 with the tax residency certificate if the treaty rate is the rate you want. The Form 145 note says the recipient's foreign tax identification number is mandatory on the form when the recipient has no PAN, and it points at Rule 217 for that.

If you want a certificate in your own name for a lower rate, Form 128 asks for a PAN. A foreign entity applies on Form 96.

Keep the residency certificate for the Indian tax year, the Rule 217 details, and the Form 41 acknowledgement with the invoice the client is paying.