Important Update on PAN-Aadhaar Linking: CBDT Extends Deadline to Avoid TDS/TCS Defaults
CBDT, via Circular, extends relief for TDS/TCS defaults due to inoperative PANs, giving taxpayers more time to link PAN with Aadhaar.
CBDT, via Circular, extends relief for TDS/TCS defaults due to inoperative PANs, giving taxpayers more time to link PAN with Aadhaar.The Central Board of Direct Taxes (CBDT) issued Circular No. 9/2025, dated 21st July 2025, announcing much-needed relief to taxpayers and tax deductors/collectors who have been affected due to PAN becoming inoperative for not being linked with Aadhaar.
This circular partially modifies the earlier Circular No. 3 of 2023 and addresses the ongoing grievances related to deduction or collection of tax (TDS/TCS) at higher rates due to PAN not being operative.
Under Rule 114AAA of the Income Tax Rules, 1962, PANs not linked with Aadhaar became inoperative from 1st July 2023. Once a PAN becomes inoperative:
- The taxpayer cannot file income tax returns.
- TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) must be deducted/collected at a higher rate.
This caused complications for deductors and collectors who made transactions with PAN holders whose PANs later turned out to be inoperative. Several taxpayers complained about receiving notices for short deduction or collection, even when the PAN was later made operative. This created confusion and compliance issues for many.
CBDT’s Huge Relief
CBDT has announced new extended deadlines to reduce this hardship. Here's what the circular says:
1. For Transactions Between 1st April 2024 and 31st July 2025:
If the PAN is made operative on or before 30th September 2025, there will be no demand or penalty for short deduction/collection of TDS/TCS during this period.
2. For Transactions On or After 1st August 2025:
If the PAN is made operative within 2 months from the end of the month in which the transaction occurred, again, no short deduction/collection liability will arise.
The PAN must be linked with Aadhaar to become operative. These reliefs only apply if the PAN becomes operative within the timelines mentioned. Other rules under Chapter XVII-B and XVII-BB of the Income Tax Act will still be applicable.
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