Got a tax notice for submitting less TDS? CBDT relief may offer respite

This move spares taxpayers from harsh TDS penalties if PAN is fixed in time, says expert

The Central Board of Direct Taxes (CBDT) has provided some relief to taxpayers and businesses who have been served tax demand notices for deducting tax at source (TDS) or collecting tax at source (TCS) at normal rates from payees whose Permanent Account Numbers (PANs) had become inoperative for want of Aadhaar linkage.

 

Under the Income-Tax Act, inoperative PANs attract higher TDS/TCS rates of 20 per cent.

 

CBDT has spared deductors and collectors from paying the differential tax and penalties, provided certain conditions are met.

 

What triggered this relief?

Several deductors had raised concerns about notices from the tax department demanding additional tax where they applied normal TDS/TCS rates, unaware that the payee’s PAN was inactive.

 

“The CBDT’s circular provides significant relief to taxpayers who were saddled with tax demands arising from short deduction or collection on account of a payee’s PAN being inoperative due to non-linkage with Aadhaar,” says Ashish Mehta, partner at Khaitan & Co.

 

Who benefits and how?

Relief applies in cases where:

 

-Transactions occurred between April 1, 2024 and July 31, 2025, and

 

-The payee’s PAN is made operative by September 30, 2025.

 

In such cases, demand notices for short deduction will be quashed after rectification of returns or reprocessing.

 

Example: Consider A buying property worth Rs 1 crore from B in May 2024 and deducting TDS at 1 per cent (Rs 100,000). If B’s PAN was inoperative, A was liable to deduct TDS at 20 per cent (Rs 20,00,000), resulting in a tax demand of Rs 19 lakh.

 

“According to the new circular, A will no longer be required to pay this demand if B’s PAN becomes operative by September 30, 2025,” explains Mehta.

 

No penalty or interest if PAN is updated

“If the payee links PAN with Aadhaar within the prescribed timelines, the deductor need not pay any interest or penalty for short deduction,” adds Mehta.

What should taxpayers do now?

 

To avoid future notices, experts recommend:

 

-Verify PAN-Aadhaar linkage of employees, tenants, or sellers before making payments.

 

-Advise payees to complete linkage promptly to avoid higher TDS/TCS rates.

 

-Monitor compliance timelines to ensure eligibility for relief.

 

“This proactive step is critical for employers, landlords, property buyers, and small businesses to stay out of trouble,” says Mehta.