Deductors can collect TDS/TCS at normal rates even if PAN is not linked to Aadhaar by May 31

There is relief in store for companies and businesses with the Income Tax Department on Wednesday saying that these entities will not be treated as defaulter in cases of getting TDS (Tax Deducted at Sources)/TCS (Tax Collected at Sources) at normal rate from individuals even if their PAN is not linked with Aadhaar. This will be subject to certain conditions.

According to a circular by the Central Board of Direct Taxes (CBDT), if a PAN becomes “inoperative” due to its non-linkage with Aadhaar and causes a problem with a tax deduction, the deductor will not face penalties for deducting less tax than required. This is provided the deductee links their PAN with Aadhaar and makes it usable again by May 31, 2024. As a result, deductors are no longer liable to pay the difference in income tax rates.

June 30, 2022 was the last date to link PAN with Aadhaar without any fee. From July 1, 2022 to June 30, 2023, it was allowed with a late fee of ₹1,000. If someone did not link his PAN with Aadhaar, it became inoperative from July 1, 2023. However, there was one more window post on or after July 1 2023 under which a penalty of ₹1,000 was imposed to make the PAN operative again. But it would take 30 days from the date of linking to make the PAN operative again. If there is no linkage, then no IT refund will be payable. In case, the taxpayer gets his PAN linked, he would get refund but no interest for holding. However, the most important thing is rate of TDS or TCS in case of no linkage will be double than normal rate.

Notices to businesses

Meanwhile, many businesses got 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. They were also asked to pay the differential. Taking note of representations made by these businesses, Income Tax Department came out with new circular to provide conditional relief.

Ved Jain, Former President of Institute of Chartered Accountants in India said where notices have been received for short deduction, it would be advisable to reach out to the deductee and get his PAN linked with Aadhar immediately. “It may be noted that this relief is for transactions up to March 31,2024. Accordingly for transactions on or after April 1, 2023 make sure PAN of deductee is linked to Aadhar and valid,” he said, while claiming that the facility of verification of PAN being valid is available on income tax portal.

According to Sandeep Sehgal, Partner (Tax) with AKM Global, this provision offers considerable relief to deductors, sparing them from the requirement to deposit or collect TDS/TCS at elevated rates. “At present, 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. Hence, greater relief could have been provided if the same could have been applicable from the current period along with the introduction of the utility,” he said.