The Central Board of Direct Taxes (CBDT) had earlier issued Circular No. 3/2023 dated 28th March 2023, laying down the consequences of PAN becoming inoperative due to non-linkage with Aadhaar under Rule 114AAA of the Income-tax Rules, 1962. These consequences were effective from 1st July 2023 and continue till the PAN becomes operative again.
Later, Circular No. 6/2024, dated 23rd April 2024, provided some relief to deductors/collectors by exempting them from the requirement of deducting/collecting tax at higher rates (20%) under Section 206AA/206CC, for transactions up to 31.03.2024—if PAN was made operative on or before 31.05.2024.
⚠️ Problem Faced by Deductors:
Despite following due procedures and deducting TDS/TCS at the normal rate (instead of higher 20%), notices were being received by deductors/collectors due to PANs of deductees being inoperative at the time of the transaction. This led to demands being raised under Section 200A or 206CB, due to the system processing these returns at higher rates.
This issue was particularly common in property transactions, where buyers deducted tax under Section 194-IA and later faced demands due to the seller’s PAN being inoperative.
✅ CBDT’s Relief via Circular No. 9/2025:
To address this concern, CBDT has now clarified that no liability shall arise for deducting or collecting tax at a higher rate under Sections 206AA or 206CC, if the following conditions are met:
💡 Scenarios Covered:
i. For transactions from 1st April 2024 to 31st July 2025:
- PAN was inoperative at the time of payment/credit, but
- It is made operative on or before 30th September 2025.
ii. For transactions on or after 1st August 2025:
- PAN is made operative within 2 months from the end of the month in which the amount was paid or credited.
📌 Impact of Circular:
- Deductors will no longer face demand notices if PANs are updated within the permitted time.
- Beneficial for property buyers, employers, businesses, and professionals.
- Those who have already received notices can now apply for rectification after getting PAN linked with Aadhaar.
🧾 Important Sections Involved:
- Section 206AA – Higher TDS rate for non-availability of PAN
- Section 206CC – Higher TCS rate for non-availability of PAN
- Section 200A/206CB – Processing of TDS/TCS statements and issuing of intimation
🛠️ Action Steps for Taxpayers:
- Check PAN status of deductees at the time of deduction.
- If PAN was inoperative, get it linked with Aadhaar immediately.
- If a demand notice has been received, ensure PAN is now operative and file for rectification citing this circular.
- Maintain documentary proof of PAN reactivation and Aadhaar linkage.
CBDT’s Circular 9/2025 is a welcome move that acknowledges system-generated errors and helps taxpayers avoid penal consequences due to technical lapses in PAN-Aadhaar linkage. It provides a practical window for compliance and reduces the hardship faced by genuine taxpayers.
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