Introduction: In a significant move aimed at easing compliance burdens, the Central Board of Direct Taxes (CBDT) has issued a circular providing relief to taxpayers and deductors from TDS/TCS demands that arose due to non-linkage of PAN with Aadhaar. This circular addresses concerns raised during the processing of TDS/TCS returns where higher deduction/collection rates were applied under Section 206AA/206CC read with Rule 114AAA.
Key Highlights of the CBDT Circular (Relief Measures):
🔹 Period: 01.04.2024 to 31.07.2025 If PAN is made operative (by linking with Aadhaar) on or before 30.09.2025, then the higher rate of TDS/TCS shall not apply. This is applicable retrospectively for any deduction made during this period.
🔹 Period: On or After 01.08.2025 If PAN is made operative within two months from the end of the month in which payment/credit is made, the higher rate shall not apply.
🔹 Objective: This measure is introduced to reduce hardship for deductors and taxpayers and ensure fair compliance. The income tax portal will soon auto-adjust such demands post-linkage.
Legal Framework Involved:
- Section 206AA: Mandates higher TDS rates (20% or applicable) where PAN is not furnished or is inoperative.
- Section 206CC: Similar provision for TCS.
- Rule 114AAA: Declares PAN as inoperative if Aadhaar not linked.
- CBDT Circular No. X of 2025 (expected to be notified shortly): Provides timeline-based relief if PAN is activated in due time.
Real-life Example: ABC Pvt Ltd deducted TDS @ 10% on Rs. 5 lakhs paid to a contractor in April 2024. However, the contractor’s PAN was inoperative due to non-linkage with Aadhaar. Hence, the system processed the return assuming 20% rate and raised a demand of Rs. 50,000.
Now, if the contractor links PAN-Aadhaar before 30th Sept 2025, no additional TDS will be payable and the system will reverse the demand.
Pros of the Relief Circular:
✅ Eases burden on deductors who acted in good faith.
✅ Prevents unnecessary litigation.
✅ Allows time to correct genuine lapses.
✅ Boosts compliance without penalty.
Drawbacks/Concerns:
❌ Possibility of misuse by habitual defaulters.
❌ Delays in PAN-Aadhaar validation updates may still cause inconvenience.
Steps to Link PAN with Aadhaar:
- Visit: https://www.incometax.gov.in
- Go to “Link Aadhaar” option.
- Enter PAN, Aadhaar Number, Name and validate with OTP.
- Pay the late fee (if applicable).
- Link will be confirmed via SMS/email.
Frequently Asked Questions (FAQs):
Q1. I linked my PAN and Aadhaar in August 2025. Will TDS demand for June 2024 still apply?
Ans: No, if linked by 30.09.2025, no additional TDS will be payable for transactions between 01.04.2024 and 31.07.2025.
Q2. What if PAN is linked after 30.09.2025?
Ans: Then the benefit is not available for transactions before August 2025.
Q3. Will the system automatically reverse demand?
Ans: Yes, once PAN is operative, the system will reprocess the return and auto-adjust.
Q4. Is the relief also available for TCS (Tax Collected at Source)?
Ans: Yes, the same provision applies to TCS under Section 206CC.
Q5. Is there any penalty for late linking?
Ans: Rs. 1,000 is payable as a late fee for PAN-Aadhaar linking under Section 234H.
Conclusion: This latest move by CBDT is a welcome relief for thousands of taxpayers and deductors who were staring at unjustified demands. The emphasis is now on ensuring timely PAN-Aadhaar linkage and updating of operative status to avoid future issues.
Stay tuned for the formal circular and keep your PAN active to enjoy smooth tax compliance!
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