TDS at 20%? CBDT Eases Burden for Inoperative PANs with Circular 9/2025
The Income Tax Department had earlier made it mandatory to link PAN with Aadhaar. If not linked, PAN becomes inoperative - and that triggers higher TDS/TCS rates under section 206AA of the Income Tax Act 1961.
Due to this, many businesses and deductors received demand notices for short deduction or short collection of tax, even if the PAN was later made operative.
To address this, CBDT has issued Circular No. 9/2025 dated 21st July 2025, giving relief in such cases.
What Was the Issue?
Under Section 206AA/206CC, if a PAN is inoperative, TDS or TCS must be deducted or collected at a higher rate.
Even after PAN-Aadhaar linkage was done later, the Income Tax portal still showed default notices because the deduction/collection happened when PAN was not active.
What Relief Does the Circular Offer?
The circular provides two types of relief:
1. Relief for Past Transactions:
Period Covered: 01.04.2024 to 31.07.2025
Condition: PAN should be linked with Aadhaar and made operative before 30.09.2025
Impact: No liability for higher TDS/TCS if above condition is met.
2. Relief for Future Transactions:
For payments made on or after: 01.08.2025
Condition: PAN should be made operative within 2 months from the end of the month in which payment/credit is made
Impact: No higher rate if PAN is made active in time.
Why Should You Care?
If you’re a business:
You don’t have to pay extra TDS/TCS on behalf of vendors/customers if they link PAN in time.
Avoid penalties, interest, and demand notices under Sections 200A/206CB.
FAQs – TDS/TCS & PAN Inoperativeness
Q 1. What if TDS was deducted at normal rate on inoperative PAN?
Earlier: Demand notice was raised.
Now: If PAN is linked within the relief period, no penalty/interest or extra tax.
Q 2. What is the 2-month condition?
For payments from 01.08.2025 onwards, PAN must be linked within 2 months from the end of the month of deduction/collection.
Q 3. How to make PAN operative?
Only by linking it with Aadhaar.
Conclusion:
Don’t assume PAN is active just because it’s available in records.
Always verify if it’s linked with Aadhaar and marked as operative - especially before deducting or collecting tax.
Disclaimer: This material and the information contained herein is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.
