Big Relief: No Liability on TDS/TCS Deductor u/s 206AA/206CC due to PAN-Aadhaar Non-linkage Until May 31, 2024 [Read Circular]

For transactions until March 31, 2024, if PAN becomes operative via Aadhaar by May 31, 2024, deductors/collectors are exempted from Section 206AA/206CC tax. Other Chapter XVII-B/BB deductions still apply
PAN Aadhaar linking - CBDT - Section 206AA of income tax act - TDS - TCS Deductor - taxscan

In response to taxpayer requests, the CBDT has provided significant relief. Until March 31, 2024, if PAN is linked with Aadhaar by May 31, 2024, deductors/collectors are exempt from Section 206AA/206CC tax obligations. However, other deductions/collections under Chapter XVII-B or Chapter XVII-BB remain applicable.

The board has made a partial modification to the circular 3 of 2023 dated 28th March 2023 regarding consequences of PAN becoming inoperative as per Rule 114AAA of the Income Tax Rules, 1962- reg.

The Circular emphasised that failure to furnish the Aadhaar number in line with Section 139AAA of the Income-tax Act, 1961, coupled with Rule 114AAA, leads to the PAN becoming inoperative. Subsequently, individuals facing this situation encounter a series of repercussions:

  1. Refunds of any tax amounts due under the Act will not be disbursed to them.
  2. Interest on such refunds will not be payable for the period from the specified date until the PAN becomes operative.
  3. Tax deductions under Chapter XVII-B will be at a higher rate.
  4. Tax collection at source under Chapter XVII-BB will also be at a higher rate.

These consequences, as per sub-rule (4) of Rule 114AAA, come into effect from a date specified by the Board. In this instance, the Board, through Circular No. 03 of 2023, dated March 28, 2023, stipulated that these consequences would commence from July 1, 2023, and persist until the PAN becomes operative.

The Circular also addressed grievances from taxpayers who have received notices for alleged default in TDS/TCS deduction or collection. These notices were issued despite the PANs of the deductees/collectees being inoperative. Consequently, demands were raised against the deductors/collectors.

The board stated that “With a view to redressing the grievances faced by such deductors/collectors, the Board, in partial modification and in continuation of the Circular No. 3 of 2023, hereby specifies that for the transactions entered into upto 31.03.2024 and in cases where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024, there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC, as the case maybe, and the deduction/collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act, shall be applicable.”

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