The Central Board of Direct Taxes (CBDT) has issued a fresh circular modifying earlier guidelines on the consequences of Permanent Account Number PAN-Aadhaar linking CBDT becoming inoperative under Rule 114AAA of the Income-tax Rules, 1962. The move provides relief to tax deductors and collectors facing notices for short deduction or collection of TDS/TCS.

Background PAN-Aadhaar linking CBDT

As per Circular No. 3 of 2023, PANs that were not linked with Aadhaar became inoperative from July 1, 2023, attracting higher TDS/TCS rates under Sections 206AA and 206CC of the Income-tax Act, 1961. Relief was later provided through Circular No. 6 of 2024 for transactions till March 31, 2024, where PANs were made operative on or before May 31, 2024.

However, taxpayers continued to report grievances regarding notices for defaults related to lower TDS/TCS deductions where the PAN of the deductee or collectee was inoperative at the time of transaction.

Key relief measures in 2025 circular

To address these concerns, the CBDT has now specified that deductors/collectors will not be held liable for higher TDS/TCS rates under Sections 206AA/206CC in the following situations:

For payments or credits made between April 1, 2024 and July 31, 2025, where the PAN is made operative (through Aadhaar linkage) on or before September 30, 2025.

For payments or credits made on or after August 1, 2025, where the PAN is made operative within two months from the end of the month in which the transaction occurred.

In such cases, normal TDS/TCS deduction and collection rules as per other provisions of Chapter XVII-B and XVII-BB of the Income-tax Act will continue to apply.

The move aims to reduce undue hardship to compliant deductors/collectors and streamline TDS/TCS administration amidst ongoing PAN-Aadhaar linkage enforcement.