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CBDT Circular No. 9/2025 – Relief from Higher TDS/TCS Due to Inoperative PAN

Issued Date: 21 July 2025
Authority: Central Board of Direct Taxes (CBDT)
Applicable Law: Rule 114AAA of Income-tax Rules, 1962

1. Background and Objective

In recent years, the government has enforced mandatory linking of PAN with Aadhaar to prevent tax evasion and duplication. Rule 114AAA, introduced under the Income-tax Rules, 1962, declares that a PAN becomes “inoperative” if not linked with Aadhaar by the deadline. This status affects compliance processes, especially during TDS/TCS deductions where quoting an operative PAN is essential.

The original CBDT Circular No. 3/2023 issued on 28 March 2023 clarified consequences of non-linkage. However, taxpayers and deductors faced practical issues, including default notices, despite rectifying PAN status post-transaction.

To address these problems, CBDT issued Circular No. 9/2025 offering clarity and relief.

2. Rule 114AAA: When is a PAN Inoperative?

• If PAN is not linked to Aadhaar by notified deadlines
• If PAN is not quoted in specific transactions after the deadline

Consequences of inoperative PAN:

• Higher rate of TDS/TCS under Section 206AA/206CC (generally 20%)
• Loss of tax credit/refund eligibility
• Invalidity for financial transactions (e.g., buying property, mutual fund investment)

3. Problems Leading to Circular 9/2025

Many taxpayers or payees had their PAN become inoperative without their knowledge or had linked Aadhaar after the transaction. Consequently, deductors applied standard TDS/TCS rates (e.g., 1%, 5%, 10%) only to receive demand notices from the department citing “short deduction/collection”.

This created unintended hardship despite good-faith compliance efforts. Circular 9/2025 provides relief in such cases.

4. Relief Provisions under Circular No. 9/2025

For Transactions Between 1 April 2024 and 31 July 2025

• If the deductee/collectee’s PAN was inoperative during transaction
• And the PAN becomes operative on or before 30 September 2025
• Then standard TDS/TCS rates will be accepted

For Transactions on or After 1 August 2025

• If PAN was inoperative at time of deduction/collection
• And PAN becomes operative within two months from the end of the month of transaction
• Then higher TDS/TCS under Section 206AA/206CC will not be applicable

5. Key Definitions

6. Compliance Timeline Table

7. Practical Impact on Taxpayers

• Reduced TDS/TCS liability for transactions where PAN was later made operative
• Mitigation of short deduction/collection notices
• Encourages timely PAN–Aadhaar linking

Case Study: Property Purchase

Mr. A purchased property worth ₹60 lakhs in May 2025. He deducted TDS @1% under Section 194-IA. Later, seller’s PAN was found inoperative. Normally, 20% TDS should apply. But since seller linked Aadhaar and reactivated PAN by 30 Sept 2025, Mr. A is protected under Circular 9/2025.

8. Advisory for CMAs and Professionals

• Track Aadhaar-PAN linking status for clients
• Maintain evidence of PAN activation dates
• Review past transactions from April 2024 to identify relief eligibility
• Counsel clients to avoid future defaults by early PAN compliance

9. FAQs

Q1. Is relief automatic under this circular?

No. Relief is available only if PAN becomes operative within the prescribed time limits. Evidence must be retained.

Q2. What is the deadline for PAN–Aadhaar linking?

Though earlier extended to June 2023, PANs can still be reactivated through delayed linking by paying penalties.

Q3. Will demand notices be withdrawn?

In eligible cases, deductors may respond to notices referring to Circular 9/2025 with PAN restoration proof.

10. Official Circular Reference

You can download the official Circular PDF here:
CBDT Circular No. 9/2025 PDF – incometaxindia.gov.in

11. Final Thoughts

Circular No. 9/2025 provides timely relief to many taxpayers facing unfair TDS/TCS demands due to inoperative PANs. It recognizes genuine compliance efforts and encourages proactive correction. Professionals should use this opportunity to regularize transactions and educate clients on PAN–Aadhaar linkage obligations.

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