Question: What are the consequences of PAN becoming inoperative due to non-linkage to Aadhaar? Any further clarifications from the government in this regard?
Answer given by Dr. Suresh Surana, Founder, RSM India: As per the Rule 114AAA of the Income Tax Rules, 1962 (‘the Rules’), the taxpayers who have failed to intimate their Aadhaar, shall be liable to face the following consequences as a result of their PAN becoming inoperative:
(i) Refund of any amount of tax or part thereof, due under the provisions of the Income-tax Act (‘Act’), shall not be granted.
(ii) Interest shall not be payable on such refund for the period during which the PAN remains inoperative.
(iii) Tax shall be deducted at source (‘TDS’) at higher rate, in accordance with the provisions of section 206AA of the Act.
(iv) Tax shall be collected at source (‘TCS’) at higher rate, in accordance with the provisions of section 206AA of the Act.
Circular No. 3 of 2023 detailed various consequences of PAN becoming inoperative, including deduction or collection of tax at source (‘TDS’/ ‘TCS’) at higher rate in accordance with the provisions of section 206AA or 206CC of the Act, as the case may be.
Circular No. 3 of 2023 dated 28 March 2023 clarified that the above listed consequences will be effective from 1 July 2023 and shall continue till PAN becomes operative (within 30 days from the date of intimation of Aadhaar). A fee of Rs 1000 would apply to make the PAN operative by intimating the Aadhaar number.
In this regard, various taxpayers had raised grievances that they were in receipt of notices alleging default of ‘short deduction/ collection’ of TDS/TCS while carrying out transactions where PAN of deductee / collectee was inoperative. In such cases, since the tax deduction / collection was not made at higher rate, demands have been raised by the tax authorities against the deductor / collector. In many such cases, the taxpayers may have also filed appeal before the appellate authorities.
With a view to redressal of hardships faced by such deductors/ collectors, the CBDT vide Circular No. 6/ 2024 dated 23 April 2024 relaxed the provisions and specified that for all transactions entered upto 31 March 2024 and in cases where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31 May 2024, no liability shall arise on the deductor/ collector to deduct/ collect tax at a higher rate. In other words, the rates of TDS/ TCS as provided under other provisions of the Act shall only be applicable.
Note: The requirement of Aadhaar-PAN linkage is not mandatory in the case of individuals who reside in the State of Assam, Meghalaya or Jammu and Kashmir, or those who are non-residents or of the age of 80 years or more at any time during the financial year or are not a citizen of India (Refer notification dated 11 May 2017 issued by the Ministry of Finance).
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