In a significant relief for taxpayers and businesses, the Central Board of Direct Taxes (CBDT) has announced a waiver of penalties and tax demands related to shortfalls in Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) caused by inoperative PANs. This move addresses the issues faced by many who were hit with high tax demands despite deducting tax at standard rates, unaware of the payee’s PAN being inoperative due to non-linkage with Aadhaar.
Under current income tax rules, an inoperative PAN (one not linked to Aadhaar) attracts a higher TDS/TCS rate of 20%. This led to numerous cases where deductors or collectors received steep tax demands and penalties because they had deducted tax at regular rates, not the higher 20%, when the payee’s PAN was inactive. This was a particular concern in high-value transactions, such as property sales, where a 1% TDS should have been 20% if the seller’s PAN was inoperative.
The CBDT’s latest circular provides crucial relief, provided certain conditions are met:
Who is Eligible for Relief?
The relief applies if:
- For transactions between April 1, 2024, and July 31, 2025: The payee regularizes their PAN by linking it to Aadhaar by September 30, 2025.
- For transactions on or after August 1, 2025: The payee’s PAN is made operative (by linking it with Aadhaar) within two months from the end of the month in which the amount was paid or credited.
If these conditions are met, any tax demand raised for short deduction or collection will be nullified after return rectification or reprocessing. Crucially, no penalty or interest will be levied on the deductor or collector.
Why This Move?
The CBDT’s decision comes after numerous taxpayers and businesses flagged concerns over unexpected and substantial tax demand notices, especially in high-value transactions. Often, deductors were unaware of the payee’s inoperative PAN, as there isn’t a mandatory mechanism to verify PAN-Aadhaar linkage at the time of payment.
What Taxpayers Should Do Now:
Experts urge both deductors/collectors and payees to take proactive steps:
For Deductors/Collectors:
- Verify PAN-Aadhaar Status: Always check the PAN-Aadhaar linkage status of payees before making payments to avoid future complications.
- Encourage Aadhaar Linkage: Advise payees to link their Aadhaar to their PAN promptly to prevent higher TDS/TCS rates.
- Track Compliance: Monitor the stipulated deadlines to ensure eligibility for this relief. This is vital for employers, property buyers, landlords, and small businesses engaged in frequent transactions.
For Payees:
- Link PAN and Aadhaar Immediately: If your PAN is inoperative, link it with Aadhaar without delay. This will ensure that future deductions are at the standard rates and help in rectifying any past shortfalls for the deductor, avoiding penalties for them. (Note: A ₹1,000 fee applies for linking PAN with Aadhaar).
How to Check and Link PAN-Aadhaar:
You can check your PAN-Aadhaar linkage status or link them directly through the Income Tax e-filing portal: https://www.incometax.gov.in/iec/foportal/. Look for “Link Aadhaar Status” or “Link Aadhaar” under the “Quick Links” section.
This timely relief from the CBDT offers a crucial window for compliance, emphasizing the importance of a linked PAN-Aadhaar to ensure smooth tax transactions and avoid unexpected demands.