Important Update on Consequences of Inoperative PAN and Compliance Steps

We would like to bring to your attention an important update from the Government of India regarding the consequences of a Permanent Account Number (PAN) becoming inoperative, as outlined in Circular No. 9/2025, issued by the Central Board of Direct Taxes (CBDT) on July 1^st, 2025. This circular is a partial modification of Circular No. 3/2023 dated March 28^th, 2023, and it addresses the ongoing issue of PANs becoming inoperative due to non-linkage with Aadhaar, as per Rule 114AAA of the Income-tax Rules, 1962.

Summary of Key Changes:

The CBDT has clarified certain aspects regarding the non-application of higher Tax Deduction at Source (TDS) or Tax Collection at Source (TCS) rates in cases where the PAN is inoperative. The updated circular focuses on mitigating any liabilities for taxpayers due to the non-linkage of PAN with Aadhaar.

What You Need to Know:

1. Grievances Addressed:

Several taxpayers have raised concerns about receiving notices indicating short deductions/collections of TDS/TCS for transactions where the PAN was inoperative. The Board has acknowledged these grievances and provided clarification to ensure no penalty arises from these defaults during the transitional period.

2. No Liability on Deductors/Collectors:

As per the new circular, there will be no liability on deductors or collectors (conditions apply) of TDS/TCS if they did not deduct or collect the tax at a higher rate due to the PAN being inoperative under the following circumstances:

• Scenario 1: If the amount is paid or credited between 01.04.2024 and 31.07.2025, and the PAN is made operative (as a result of linkage with Aadhaar) on or before 30.09.2025.

• Scenario 2: If the amount is paid or credited on or after 01.08.2025, and the PAN becomes operative (as a result of linkage with Aadhaar) within two months from the end of the month in which the amount was paid or credited.

Steps You Need to Take:

1. Ensure Linkage of PAN with Aadhaar:

If such employees haven’t already done so, inform them to link their PAN with Aadhaar as soon as possible. This step is critical to ensure that your PAN does not become inoperative and to avoid any potential issues related to higher TDS/TCS rates.

2. Review TDS/TCS Statements:

Review any TDS/TCS statements issued to ensure that the tax has been correctly deducted/collected at the applicable rates. If there are any discrepancies, it may be necessary to rectify them in light of the updated provisions.

Conclusion:

This update from the CBDT is a welcome relief for taxpayers who may have faced issues with inoperative PANs, especially during the transition period when PAN was not linked with Aadhaar. We advise you to ensure that such employees whose PAN was not linked then, is now linked with Aadhaar well before the deadline to avoid any complications.

We are here to help you navigate these updates smoothly.