Non-applicability of Higher TDS in case of deductee death before linking PAN to aadhar

Linking PAN with Aadhar database is one of the most crucial compliances which government mandates every person to comply. For enabling smooth functioning of TDS or TCS provisions, it was mandatory that the PAN and aadhar linkage is completed. Previously, government had issued a circular no. 6 of 2024 dated 23.04.2024 providing an opportunity to taxpayers for linking their PAN with aadhar before 31.05.2024 for transactions entered till 31.03.2024 in order to avoid deduction of TDS or TCS at a higher rate.

However, CBDT has issued a circular, stating that the higher rates of deduction shall not apply if the deductee is deceased before linking of the PAN.

Consequences of not linking PAN with Aadhar in the context of TDS/TCS deduction:
Rule 114AAA lists down consequences that apply if the PAN of a person becomes inoperative due to non-linking with his Aadhaar. One of the consequences listed is tax shall be deducted/collected at a higher rate in accordance with section 206AA/206CC. Section 206AA addresses the higher TDS deduction rates applicable to individuals who fail to furnish their Permanent Account Number (PAN). On the other hand, Section 206CC focuses on TCS, a crucial aspect of tax collection. Since, the introduction of aadhar with PAN linking is mandated by CBDT, the same had to be followed by deductees. 

Action taken by CBDT:
The CBDT has received several grievances from taxpayers who cited instances of the demise of the deductees during the period before the option to link PAN and Aadhaar could have been exercised. Tax demands are standing against the deductors as a result of failure to link the PAN and Aadhaar of the deceased person.

CBDT aimed at providing a relief to deductors or collectors in case of all the combined following instances:

• Higher rate of TDS/TCS were attracted u/s 206AA/206CC
• Transactions entered up to 31.03.2024
• Deductee or collectee died before linking of his aadhar and PAN before 31.05.2024

It was noted by CBDT that there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC, as the case maybe. The provisions were relaxed in the given circular number 8 of 2024 dated 5^th August, 2024.

Deductions under provisions of Chapter XVII-B and XVII-BB shall be applicable in these cases.

Conclusion:
As per earlier circular no.6 of 2024, no clarification was given regarding demise of deductees to whom a higher rate of tax deduction was applied. However, in the latest circular no. 8 of 2024 dated 5^th August, 2024 it was clarified by the CBDT that, no higher rates of TDS/TCS applicable as per provisions of section 206AA/206CC of the Income Tax Act, 1961 in the event of death of deductee/collectee before linking of PAN with Aadhar.