Big Update On PAN-Aadhaar Linking TDS Penalty: Check Income Tax Department’s Circular

Bringing relief to taxpayers with unlinked PAN and Aadhaar, the Income Tax Department announced on April 24, 2024, an extension in the deadline for imposing penalties for non-deduction of double TDS. This decision comes as a relief also for many people dealing with taxpayers who didn't link Pan with Aadhar but didn't deduct higher TDS. The Central Board of Direct Taxes (CBDT) in the circular stated that no action will be taken against deductees of TDS for short deduction of Tax Deducted at Source (TDS) if assessees link their PAN with Aadhaar by May 31.

Also Read: Inheritance, Wealth Distribution Trigger Political Storm: History Of India’s Inheritance Tax And How It Works In US

What Does the Extension Mean?

To put things simpler, as per income tax rules, if a Permanent Account Number (PAN) is not linked with a biometric Aadhaar, TDS is required to be deducted at double the applicable rate. As of June 30, 2023, PANs of those who had not linked their two ID proofs became inactive. This means that anyone who is required to deduct tax at source (TDS) or perform transactions requiring the collection of tax at source must deduct double TDS. In such cases, as the deduction/collection has not been made at a higher rate, demands have been raised by the department against the deductors/collectors while processing TDS/TCS statements.

The Central Board of Direct Taxes (CBDT) said several grievances have been received from taxpayers who received notices intimating that they have committed default of 'short-deduction/collection' of TDS/TCS while carrying out the transactions where the PANs of the deductees/collectees were inoperative. So this extension alleviates the burden on such deductors who have received notices for defaulting on TDS/TCS payments due to inoperative PANs.

Sandeep Sehgal, Partner-Tax, AKM Global, welcomed the circular, saying it gives some relief to tax deductors where the PAN of deductees is found to be inoperative due to non-linkage with Aadhaar. He advised prompt action from deductors to reach out to deductees to make sure linking PAN with Aadhaar is done before May 31, to avoid penalties.

However, Sehgal pointed out that currently. "no utility is available to verify whether a PAN is operative or not and the deductors would have to rely upon deductee for the same," and such a utility should be made available.

PAN-Aadhar Linking

Deductees can click the following link if their PAN has not been linked to Aadhar: eportal.incometax.gov.in/iec/foservices/#/pre-login/bl-link-aadhaar

The Income Tax Department has earlier informed PAN holders about the possibility of demographic mismatches while trying to link PAN with Aadhaar. Such mismatches can be resolved at dedicated centres of PAN Service Providers (Protean & UTIITSL). In these centres, biometric-based authentication is available, to resolve the issue by paying a nominal fee. Individuals aged 80 years or older or NRIs are exempt from the Aadhaar-PAN linkage mandate.

Failure to link your PAN to your Aadhar number, your account will be rendered non-KYC compliant, and you will be restricted from trading in securities until the PAN and Aadhar number have been linked.

With inoperative PANs, you cannot file income tax returns pending returns cannot be processed, and TDS will be deducted at double rate.