CBDT Provides Significant Relief on TDS Demands Arising from Inoperative PAN-Aadhaar Linkage
Big relief on TDS of NOPAN…
Absolutely! Adding tables can significantly improve the readability and clarity of the article, especially when dealing with dates and conditions. Here’s the updated article with tables and enhanced formatting:
CBDT Provides Significant Relief on TDS Demands Arising from Inoperative PAN-Aadhaar Linkage
New Delhi, July 22, 2025 – In a welcome move for taxpayers and deductors alike, the Central Board of Direct Taxes (CBDT) has issued a crucial circular (Circular No. 09/2025 dated July 21, 2025) offering substantial relief from demands for short deduction/collection of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) arising from inoperative Permanent Account Numbers (PANs) due to non-linkage with Aadhaar. This decision addresses numerous grievances from taxpayers who faced penal consequences despite genuine efforts to comply with tax regulations.
The Challenge of Inoperative PANs and Higher TDS/TCS
The Income Tax Act mandates the linking of PAN with Aadhaar. Failure to do so by the stipulated deadlines results in the PAN becoming ‘inoperative.’ A key consequence of an inoperative PAN is the application of higher TDS/TCS rates, often up to 20%, as per Sections 206AA and 206CC of the Income-tax Act, 1961.
However, many deductors/collectors, unaware of the inoperative status of a deductee’s/collectee’s PAN at the time of transaction, continued to deduct/collect tax at normal rates. This led to the Income Tax Department issuing demand notices for “short deduction/collection” when processing TDS/TCS statements, imposing a significant burden on deductors. This issue was particularly prevalent in high-value transactions like property sales where buyers, for instance, might have deducted 1% TDS instead of the mandated 20% if the seller’s PAN was inoperative.
CBDT’s Latest Relief Measures: Key Dates and Conditions
Recognizing the practical difficulties faced by deductors/collectors, the CBDT’s new circular provides a crucial window for compliance and relief from such demands. The circular specifies that no liability shall arise for deducting or collecting tax at a higher rate under Sections 206AA or 206CC, provided certain conditions are met.
Here’s a breakdown of the two key scenarios for relief:
| Scenario | Period of Payment/Credit | Condition for Relief (PAN Operative By) | Applicable TDS/TCS Rate | Impact on Demands |
| 1 | April 1, 2024 to July 31, 2025 | September 30, 2025 | Normal rates apply | Existing demands to be withdrawn/rectified |
| 2 | On or after August 1, 2025 | Within two months from the end of the month of payment/credit | Normal rates apply | Prevents future higher-rate demands |
Example Illustration:
Let’s consider a practical example for clarity:
| Transaction Date | PAN Status (at transaction) | Amount Paid | TDS Deducted (Initial) | Higher TDS Rate (20%) | Relief if PAN made operative by | Resulting TDS Rate |
| May 15, 2025 | Inoperative | ₹5,00,000 | ₹5,000 (1%) | ₹1,00,000 | September 30, 2025 | 1% (Normal) |
| August 10, 2025 | Inoperative | ₹2,00,000 | ₹2,000 (1%) | ₹40,000 | October 31, 2025 | 1% (Normal) |
Impact and What it Means for Taxpayers
This circular is a significant relief for a wide range of taxpayers, including employers, property buyers, businesses, and professionals who have faced or are likely to face demand notices due to this issue. The key takeaways are:
- Withdrawal of Demands: Existing demand notices for short deduction/collection arising from inoperative PANs (where the conditions are met) are expected to be withdrawn or rendered non-enforceable. Deductors who have already received such notices can now apply for rectification.
- Normal Rates Apply: In the specified scenarios, the deduction/collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act (i.e., normal rates) shall be applicable.
- Proactive Compliance is Key: Deductors are strongly advised to proactively check the PAN-Aadhaar linkage status of their deductees/collectees. Encouraging timely Aadhaar linkage is crucial to avoid future complications. Tools like the Income Tax e-filing portal allow for quick verification.
- Benefit for Property Transactions: Property buyers, who often faced substantial demands in cases where sellers’ PANs were inoperative, stand to benefit significantly from this clarification.
The CBDT’s move demonstrates its commitment to addressing genuine hardships faced by compliant taxpayers and ensuring a smoother tax administration process. It provides a practical window for taxpayers to rectify the PAN-Aadhaar linkage and avoid penal consequences. Taxpayers who have received such notices or anticipate them should ensure that the concerned PANs are made operative by linking them with Aadhaar within the prescribed deadlines to avail this much-needed relief.
Avinash Bhatt
Email: Bhattavi93@gmail.com