CBDT circular on non-operative PANs before 31.05.2024

PAN card and aadhar card linking has become mandatory for various class of deductors and deductees like never before. Deductors are usually required to deduct higher TDS where PAN and Aadhar of a particular deductee is not linked. Many times deductors are unaware of deductee’s PAN not being linked to their aadhar results in requirement of higher deduction of TDS by deductors. Non-linking of aadhar with PAN makes the PAN of a person inoperative which is as equal to the person not having PAN number.

To address this particular issue, CBDT has come up with a circular bearing circular number 06/2024 dated 23rd April, 2024. In this article we will discuss this circular in detail.

Overview of Circular No. 06/2024:
If a deductee’s PAN which had become inoperative becomes operative by linking with aadhar by 31st May 2024, there shall be no liability on the deductor to deduct TDS as prescribed in the provisions, for the transaction entered into till 31st March, 2024.

A valid PAN will attract provisions of TDS where TDS is deducted at a normal rate. Whereas, a higher rate of TDS is applicable for a PAN which has become inoperative.

To put this in simple words, deductors were receiving notices for short deductions because PANs of their deductees had become inoperative due to non-linking of aadhar with PAN.

Section 206AA and 206CC of the Income Tax Act, 1961 deals with provisions related to deduction of TDS and higher rates of TDS for specified category of deductees. All these provisions are applicable to TCS i.e. Collection of Tax as well.

This circular particularly provides relief to transactions which were entered upto 31st March, 2024.

If deductees, who are required to make their PANs operative, do so before 31st May, 2024 then the deductors are not required to deduct tax at higher rates even for those transactions which were entered into till 31st March, 2024.

Let us understand this with a small illustration.

Mr.A is a deductor who has entered into a transaction on 1st January, 2023 and Mr.B is a deductee(whose PAN has become inoperative).

Situation 1 – If Mr.B’s PAN is valid. Mr.A would have deducted TDS @1%.

Situation 2 – Since Mr.B’s PAN has become inoperative, Mr.A is supposed to deduct TDS @20% but if Mr.A fails to do so he will receive the notice for short deduction of TDS. 

Now let’s say that Mr.B gets his PAN linked before 31st May, 2024 and if Mr.A had deducted tax at normal rate 1% then it will be considered as enough compliance.

Role of deductors after this circular:
Deductors who are facing frequent compliance of tax deductions and who are in receipt of notices for short deductions of TDS for transactions upto 31st March, 2024 shall inform the deductees having inoperative PANs to get their PAN linked with aadhar in order to avoid facing such notices for short deduction of taxes.

Role of deductees after this circular:
Deductees, whose PANs have become inoperative shall get their PAN linked with aadhar in order to avoid excess deduction of taxes by deductors.

CBDT has provided relief to deductors with this circular where a number of deductors had approached department to provide them relief in notices issued to them for short deductions of TDS from deductees who did not meet compliance requirements of linking PAN with their aadhar. Non-linking makes the PANs inoperative and liability to deduct tax is specified at a higher rate. 

In the circular, it is clearly stated that for transactions entered into before 31st March, 2024 and where inoperative PANs are involved, if linked before 31st May, 2024 makes the PAN operative and tax deduction provisions are applied at a normal rate.

Link of the circular for readers reference:


About Author:

CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.

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