No Higher TDS/TCS If PAN Becomes Operative Within Time | CBDT

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  • Last Updated on 23 July, 2025

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Inoperative PAN

Circular No. 9/2025, dated 21-07-2025

The Central Board of Direct Taxes (CBDT) has issued a partial modification to its earlier Circular No. 03/2023, dated 28th March 2023, which outlined the consequences of a Permanent Account Number (PAN) becoming inoperative under Rule 114AAA of the Income-tax Rules, 1962.

1. Background – Impact of Inoperative PAN on TDS/TCS Compliance

Several taxpayers have reported instances where:

  • Notices were received for defaults in the short deduction or collection of TDS/TCS, and
  • Such defaults occurred during transactions where the deductee’s or collectee’s PAN was found to be inoperative at the time of credit or payment.

As a result, demands were raised against deductors or collectors during the processing of TDS/TCS statements under:

  • Section 200A (for TDS), or
  • Section 206CB (for TCS) due to non-application of higher tax rates as prescribed under Section 206AA (for TDS) or Section 206CC (for TCS).

2. Relief Granted to Deductors/Collectors

To mitigate the grievances of genuine deductors and collectors, the CBDT has relaxed the application of higher tax rates in specific scenarios. No liability shall arise under Section 206AA or 206CC in the following cases:

2.1 Transactions Between 01-04-2024 and 31-07-2025

  • Where the amount is paid or credited during this period, and
  • The PAN becomes operative (by way of Aadhaar linkage) on or before 30-09-2025

2.2 Transactions On or After 01-08-2025

  • Where the amount is paid or credited on or after 1st August 2025, and
  • The PAN becomes operative within two months from the end of the month in which such payment or credit took place

3. Applicable Rate of Deduction/Collection

In the above-mentioned cases, higher rates under Section 206AA/206CC will not apply. Instead, the regular rates of deduction/collection as per the other applicable provisions of Chapter XVII-B or Chapter XVII-BB of the Income-tax Act shall be followed.

4. Conclusion

This clarification brings welcome relief to deductors and collectors who were otherwise penalised due to temporary PAN inoperativeness, despite subsequent Aadhaar linkage. It emphasises the importance of timely PAN-Aadhaar linkage and aims to reduce unjustified tax demands.

Click Here To Read The Full Circular

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied