CBDT offers relief on TDS/TCS shortfall due to inoperative PANs: What taxpayers need to know

In a move that eases the burden on taxpayers and businesses, the Central Board of Direct Taxes (CBDT) has announced relief for those who received tax demand notices for short deduction or collection of tax due to inoperative PANs. This applies to cases where tax was deducted or collected at regular rates, but the PAN of the payee was found to be inactive owing to Aadhaar non-linkage.

Under current income tax rules, PANs not linked to Aadhaar are considered inoperative and attract a much higher TDS/TCS rate of 20%. This has led to thousands of cases where deductors or collectors were hit with steep tax demands and penalties, despite deducting tax in good faith at standard rates.

The CBDT’s latest circular now waives off these additional demands—provided certain conditions are met.

What triggered the move?

Several taxpayers and businesses had flagged concerns after receiving unexpected tax demand notices. These demands often ran into lakhs, particularly in high-value transactions like property sales. In many instances, the deductor was unaware that the payee’s PAN was inactive, as there is no mandatory verification mechanism in place for PAN-Aadhaar linkage at the time of payment.

Who is eligible for relief?

The relief applies if:

The transaction took place between April 1, 2024, and July 31, 2025

The payee regularizes their PAN by linking it to Aadhaar by September 30, 2025

If these conditions are met, the tax demand raised for short deduction or collection will be nullified after return rectification or reprocessing. No penalty or interest will be levied on the deductor.

What taxpayers should do now?

Experts urge deductors to:

Proactively check PAN-Aadhaar status of payees before making payments

Encourage early Aadhaar linkage to avoid higher TDS

Track compliance timelines to remain eligible for this relief

This is especially important for employers, property buyers, landlords, and small businesses who deal with frequent transactions and could unknowingly fall afoul of the law.