INOPERATIVE PAN: WHAT EVERY TAXPAYER & DEDUCTOR SHOULD KNOW
15 Sept 2025
INOPERATIVE PAN: WHAT EVERY TAXPAYER & DEDUCTOR SHOULD KNOW
INTRODUCTIONThe linkage of PAN with Aadhaar has become a crucial compliance requirement for all taxpayers and deductors. From 1 July 2023, any PAN not linked with Aadhaar has been treated as inoperative, resulting in higher TDS/TCS deductions, compliance challenges, and penalties.
We have outlined everything you need to know—ranging from the impact of inoperative PANs under Sections 206AA/206CC to CBDT circulars offering relief, the actions required to avail the benefit of CBDT relief circulars within due date of 30th September 2025, reactivating PAN, and the process of linking it with Aadhaar. Whether you are a taxpayer or a deductor, this guide will help you stay compliant, avoid penalties, and ensure seamless financial transactions.
HISTORY
- As mandated by Rule 114AAA of the Income-tax Rules, 1962, any PAN not linked with Aadhaar became inoperative from 1 July 2023.
- Circular No. 3/2023 (dated 28 March 2023) formalized this consequence and clarified that inoperative PANs attract higher TDS/TCS rates.
HISTORY
- As mandated by Rule 114AAA of the Income-tax Rules, 1962, any PAN not linked with Aadhaar became inoperative from 1 July 2023.
- Circular No. 3/2023 (dated 28 March 2023) formalized this consequence and clarified that inoperative PANs attract higher TDS/TCS rates.
LEGAL FRAMEWORK
1) PAN–Aadhaar Linkage under Section 139AA
The Income-tax Act, 1961 introduced Section 139AA, making it compulsory to link PAN with Aadhaar. The objective is to eliminate duplicate PANs and strengthen taxpayer identification.
The Income-tax Rules, 1962 provide further clarity through Rule 114AAA. From 1 July 2023, any PAN not linked with Aadhaar is treated as inoperative. Such a PAN:
• TDS will be deducted or collected at a higher rate in accordance with Section 206AA.
• TCS will be deducted or collected at a higher rate in accordance with Section 206CC.
• No refund will be issued against such PANs.
• TCS will be deducted or collected at a higher rate in accordance with Section 206CC.
• No refund will be issued against such PANs.
• Interest will not be payable on such refund for the period during which the PAN remains inoperative.
3) Consequences under Section 206AA & 206CC
• Section 206AA (TDS) mandates deduction at the higher of:
o the rate specified in the relevant provision,
o the rate in force, or
o 20%.
o the rate in force, or
o 20%.
• Section 206CC (TCS) imposes a similar rule for tax collection at source.
In effect, if PAN becomes inoperative, all transactions attract higher TDS/TCS rates until the PAN is reactivated by linking it with Aadhaar.
CBDT RELIEF DEADLINE: 30 SEPT FOR THE PERIOD FROM 1 APRIL 24 TO 31 JULY 2025
CIRCULAR 9/2025 issued on 21 July 2025
CIRCULAR 9/2025 issued on 21 July 2025
The CBDT relief in the new circular (partial modification of Circular 03/2023 and 06/2024) is mainly about removing the liability of deductors/collectors from higher TDS/TCS rates under Section 206AA/206CC, if the PAN–Aadhaar linkage is completed within the allowed timelines.
Relief 1: For transactions from 01.04.2024 to 31.07.2025
• If the deductee/collectee’s PAN becomes operative (linked with Aadhaar) on or before 30.09.2025.
Deductor/collector will NOT be treated as in default for not applying higher TDS/TCS under Section 206AA/206CC.
• If the deductee/collectee’s PAN becomes operative (linked with Aadhaar) on or before 30.09.2025.
Deductor/collector will NOT be treated as in default for not applying higher TDS/TCS under Section 206AA/206CC.
Relief 2: For transactions on or after 01.08.2025
• If the deductee/collectee’s PAN becomes operative within 2 months from the end of the month in which the amount was paid/credited.
Deductor/collector will again not face any demand for short-deduction/collection due to non-application of higher TDS/TCS.
• If the deductee/collectee’s PAN becomes operative within 2 months from the end of the month in which the amount was paid/credited.
Deductor/collector will again not face any demand for short-deduction/collection due to non-application of higher TDS/TCS.
Important Clarification:
• In both cases above, normal TDS/TCS provisions will apply meaning deduction/collection at applicable standard rates can be done.
• The relief is only from liability of higher rates under Section 206AA/206CC, provided the PAN is activated within the prescribed window.
• In both cases above, normal TDS/TCS provisions will apply meaning deduction/collection at applicable standard rates can be done.
• The relief is only from liability of higher rates under Section 206AA/206CC, provided the PAN is activated within the prescribed window.
KEY ACTIONS REQUIRED TO CLAIM CBDT RELIEF BENEFITS
1. Review Transactions:
Examine all TDS/TCS deductions and collections for payments/credits made from 01.04.2024 onwards, focusing especially on those where PANs were inoperative at the time of deduction/collection.
2. Identify Impacted Cases:
Maintain a list of deductees/collectees whose PANs were inoperative at transaction time due to non-linkage with Aadhaar.
3. Proactive Communication:
Proactively communicate with identified deductees/collectees encouraging them to complete PAN-Aadhaar linkage as soon as possible-informing them of relief deadlines:
Maintain a list of deductees/collectees whose PANs were inoperative at transaction time due to non-linkage with Aadhaar.
3. Proactive Communication:
Proactively communicate with identified deductees/collectees encouraging them to complete PAN-Aadhaar linkage as soon as possible-informing them of relief deadlines:
o For transactions from 01.04.2024 to 31.07.2025 PAN linkage must be completed by 30.09.2025
o For transactions on or after 01.08.2025 PAN linkage must be completed within 2 months from the end of the month of payment/credit.
4. Monitor PAN Status:
Set up a periodic monitoring mechanism to verify status of affected PANs and track completion of Aadhaar linkage within the allowed window.
5. Maintain Documentation:
Keep records of
o For transactions on or after 01.08.2025 PAN linkage must be completed within 2 months from the end of the month of payment/credit.
4. Monitor PAN Status:
Set up a periodic monitoring mechanism to verify status of affected PANs and track completion of Aadhaar linkage within the allowed window.
5. Maintain Documentation:
Keep records of
o Lists of impacted deductees/collectees
o Internal and external communications regarding PAN-Aadhaar linkage
o Evidence of corrective actions, for audit and defense against possible demand notices.
o Internal and external communications regarding PAN-Aadhaar linkage
o Evidence of corrective actions, for audit and defense against possible demand notices.
6. Respond to Default Notices:
If default notices arise due to higher TDS/TCS on inoperative PANs, use the relief window to provide documentation of PAN activation within the stipulated period to resolve such demands.
If default notices arise due to higher TDS/TCS on inoperative PANs, use the relief window to provide documentation of PAN activation within the stipulated period to resolve such demands.
HOW TO LINK PAN CARD WITH AADHAAR CARD?
When a PAN is not linked with Aadhaar, it becomes inoperative. To reactivate, you need to:
1. Pay the penalty for non-linking.
2. Link PAN with Aadhaar after payment.
When a PAN is not linked with Aadhaar, it becomes inoperative. To reactivate, you need to:
1. Pay the penalty for non-linking.
2. Link PAN with Aadhaar after payment.
Process 1: Pay Penalty for Re-Activating Inoperative PAN
1. Visit the Income Tax e-Filing Portal.
2. Under Quick Links, click e-Pay Tax.
3. Enter PAN, confirm it, provide your mobile number, and verify with OTP.
4. On the e-Pay Tax page, click Continue.
5. Under Income Tax, click Proceed.
6. Select:
o Assessment Year – 2024–25
o Type of Payment (Minor Head) – Other Receipts (500)
o Fee for delay in linking PAN with Aadhaar
7. The penalty amount will appear pre-filled. Click Continue and make the payment through net banking, debit card, over-the-counter, NEFT/RTGS, or payment gateway (only if your bank is authorised).
1. Visit the Income Tax e-Filing Portal.
2. Under Quick Links, click e-Pay Tax.
3. Enter PAN, confirm it, provide your mobile number, and verify with OTP.
4. On the e-Pay Tax page, click Continue.
5. Under Income Tax, click Proceed.
6. Select:
o Assessment Year – 2024–25
o Type of Payment (Minor Head) – Other Receipts (500)
o Fee for delay in linking PAN with Aadhaar
7. The penalty amount will appear pre-filled. Click Continue and make the payment through net banking, debit card, over-the-counter, NEFT/RTGS, or payment gateway (only if your bank is authorised).
Process 2: Link PAN with Aadhaar After Penalty Payment
1. Wait 4–5 days for payment verification.
2. Visit the Income Tax e-Filing Portal and click Link Aadhaar under Quick Links.
3. Enter PAN and Aadhaar Number, then click Validate.
4. Once the payment is verified, a message will pop up—click Continue.
5. Provide the required details and click Link Aadhaar.
6. Enter the OTP received on your registered mobile number.
7. Your request is submitted successfully.
KEY TAKEAWAYS
The journey from an inoperative PAN to relief under CBDT circulars represents the government’s attempt to balance compliance and fairness. The phased relief via Circulars 6/2024 and 9/2025 offers a window of corrective action for deductors and collectees who acted in good faith during PAN-Aadhaar linkage delays.
1. Wait 4–5 days for payment verification.
2. Visit the Income Tax e-Filing Portal and click Link Aadhaar under Quick Links.
3. Enter PAN and Aadhaar Number, then click Validate.
4. Once the payment is verified, a message will pop up—click Continue.
5. Provide the required details and click Link Aadhaar.
6. Enter the OTP received on your registered mobile number.
7. Your request is submitted successfully.
KEY TAKEAWAYS
The journey from an inoperative PAN to relief under CBDT circulars represents the government’s attempt to balance compliance and fairness. The phased relief via Circulars 6/2024 and 9/2025 offers a window of corrective action for deductors and collectees who acted in good faith during PAN-Aadhaar linkage delays.
At Taxosmart, we provide comprehensive tax-related services, including PAN-Aadhaar linkage assistance, TDS/TCS compliance, correction filing, and refund claims. Our experts ensure smooth, timely, and accurate handling of all tax procedures, helping taxpayers and deductors stay fully compliant and avoid unnecessary penalties.
With TAXOSMART, your tax return is in safe hands.
Stay informed, stay transparent—and most importantly, stay stress-free. Let us help you file smart and secure your financial peace of mind.
Stay informed, stay transparent—and most importantly, stay stress-free. Let us help you file smart and secure your financial peace of mind.
DISCLAIMER
The information contained in this document is prepared by R.J. Soni & Associates and TaxOSmart LLP (hereinafter referred to as RJSA) for information purpose only. It does not constitute any legal advice or tax advice. In no way, this document should be treated as a marketing material or efforts to solicit a client. While we have made every attempt to ensure that the information contained in this document is true, RJSA, its partners and/or any of its employees make no claims / guarantee about its accuracy, completeness, or up-to-date character, or warranty, express or implied, including the warranty of opinions expressed for a particular purpose, or assume any liability or responsibility for the accuracy, completeness, or usefulness of any information available from this document.
The information contained in this document is prepared by R.J. Soni & Associates and TaxOSmart LLP (hereinafter referred to as RJSA) for information purpose only. It does not constitute any legal advice or tax advice. In no way, this document should be treated as a marketing material or efforts to solicit a client. While we have made every attempt to ensure that the information contained in this document is true, RJSA, its partners and/or any of its employees make no claims / guarantee about its accuracy, completeness, or up-to-date character, or warranty, express or implied, including the warranty of opinions expressed for a particular purpose, or assume any liability or responsibility for the accuracy, completeness, or usefulness of any information available from this document.