Relief from Income Tax Demand Extended for TDS Short Deductions Due to Inoperative PAN of Deductee

Consequences of Inoperative PAN under TDS:

Circular No. 3 of 2023, dated 28.03.2023, issued by the board, details the consequences of a PAN becoming inoperative as follows:

1. Refunds of any tax amount, or part thereof, owed under the Act will not be issued.
2. Interest on such refunds, from the specified date under sub-rule (4) of Rule 114AAA until the PAN becomes operative, will not be payable.
3. In cases where tax deduction is required under Chapter XVII-B for such individuals, it will be done at a higher rate as per section 206AA.
4. Similarly, in cases where tax collection at source is applicable under Chapter XVII-BB for such individuals, it will be collected at a higher rate as per section 206CC.

Notices raised by the Department:

Taxpayers have been receiving notices indicating that they have committed a default of’short-deduction/collection’ of TDS/TCS while carrying out transactions where the PANs of the deductees/collectees were inoperative. Consequently, demands have been raised against deductors and collectors under Section 200A or 206CB of the Act for not deducting/collecting tax at the higher rate.

Clarification provided by the Department:

The department has provided relief for the above issue by stating that taxpayers will not be treated as defaulters if they deduct TDS at normal rates from individuals even if their PAN is not operative. As per the Circular released by the CBDT, if the PANs become operational (via Aadhaar linkage) by May 31, 2024, for transactions entered until March 31, 2024, deductors and collectors are not liable to deduct/collect tax under Section 206AA/206CC and can deduct at normal rates.

It may be noted that this relief is for transactions up to March 31, 2024. Accordingly, for transactions on or after April 1, 2024, the taxpayer must ensure the PAN of the deductee is linked to Aadhaar and valid, as failure to deduct TDS at higher rates would attract a demand from the department.

Steps to View Aadhaar Link Status: Here are the steps to view the Aadhaar link status:

Step 1:: On the e-Filing Portal homepage, under Quick Links, click Link Aadhaar Status.

Step 2:: Enter your PAN and Aadhaar number, and click View Link Aadhaar Status.