Aadhaar-PAN linking update: Pay penalty for not deducting higher TDS amount if PAN and Aadhaar not linked by this date

The Income Tax Department has urged taxpayers to link PAN with Aadhaar by May 31, 2024, to avoid higher tax deducted at source (TDS) or tax collected at source (TCS). In a post on social media platform X on May 28, 2024, the tax department said, “Kind attention taxpayers, please link your PAN with Aadhaar before May 31st, 2024.”

“Linking your PAN with your Aadhaar by May 31 ensures you don’t face higher tax deduction/ tax collection under Section 206AA and 206CC of the Income Tax Act, 1961, due to an inoperative PAN for the transactions entered into before March 31, 2024,” it added.

Inoperative PAN of the deductees: What CBDT said earlier

The TDS is deducted at a higher rate when a deductee’s (whose tax has been deducted) PAN has not been linked with Aadhaar. A PAN that is not linked Aadhaar becomes an inoperative PAN.

TDS on salary: How to avoid higher income tax under new, old tax regime

On April 23, 2024, the CBDT published a circular to resolve complaints from deductors/collectors (who have deducted the tax) who collected TDS/TCS at the regular rate but were required to deduct/collect at the higher rate due to the deductee’s PAN being inoperative (unlinked with Aadhar) since April 1, 2023. The deductors got tax notices from the Income Tax Department for committing the default of "short-deduction/collection" of TDS/TCS due to such transactions.

“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 of TDS/TCS statements under section 200A or section 206CB of the Act, as the case may be,” the CBDT said.

According to the CBDT circular dated April 23, 2024, “With a view to redressing the grievances faced by such deductors/collectors, the Board, in partial modification and in continuation of the Circular No. 03 of 2023, hereby specifies that for the transactions entered into up to 31.03.2024 and in cases where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024, there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC, as the case maybe, and the deduction/collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act, shall be applicable.”

So, the deductees (whose tax has been deducted) need to link their PAN and Aadhaar by May 31, 2024, so the deductor (who has deducted the tax) is not liable to pay a penalty for not deducting higher TDS.

In Central Board of Direct Taxes (CBDT) Circular No. 6/2024, which was released on April 23, 2024, the CBDT described the rules and the consequences of not linking PAN to Aadhaar.

Who needs to link Aadhaar and PAN?
Section 139AA of the Income Tax Act provides that every individual who has been allotted a permanent account number (PAN) as of July 1, 2017, and who is eligible to obtain an Aadhaar number, shall intimate his Aadhaar number in the prescribed form and manner. Your PAN will become inoperative if you do not link it with your Aadhaar till 30th June 2023. However, people who fall under the exempted category will not be subject to the effects of PAN becoming inoperative.

How to link PAN with Aadhaar online through the e-filing website

Step 1: Visit Income Tax Site - https://www.incometax.gov.in/iec/foportal.
Step 2: Under ‘Quick Links’, click on ‘Link Aadhaar’. Provide the PAN, Aadhaar number, and name as mentioned in the Aadhaar card
Step 3: Enter details such as PAN Number, Aadhaar number, your name on Aadhaar, and your mobile number, Tick the square if only the birth year is mentioned in the Aadhaar card, and also tick the box where you agree to get your Aadhaar details validated. Click on ‘Link Aadhaar’.
Step 4: Enter the Captcha code. The OTP will be sent to the registered mobile number and click the validate button.
Note that you can only link your Aadhaar and PAN after paying a Rs. 1,000 fine.