The CBDT vide Circular No. 09/2025 dated July 21, 2025, has provided relief to deductors/collectors facing demands for short deduction/collection of TDS/TCS due to inoperative PANs under Rule 114AAA. As a partial modification of Circular No. 3/2023, no higher TDS/TCS under sections 206AA/206CC will apply if: (i) payment is made between 01.04.2024 and 31.07.2025 and PAN becomes operative by 30.09.2025, or (ii) payment is made on/after 01.08.2025 and PAN becomes operative within two months of month-end. Standard TDS/TCS provisions under Chapters XVII-B/BB will still apply.
The Central Board of Direct Taxes (hereinafter ‘the Board’) vide Circular No. 03 of 2023 dated 28th March, 2023 had specified that the consequences of PAN becoming inoperative as per Rule 114AAA of the Income-tax Rules, 1962 shall take effect from 1st July, 2023 and continue till the PAN becomes operative. Further, Circular No. 06 of 2024 dated 23.04.2024 issued by the Board, provided relief to deductors/collectors from the applicability of higher TDS/TCS rates under section 206AA/206CC of the Income-tax Act, 1961 (hereinafter ‘the Act’) for transactions entered into upto 31.03.2024, where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024.
Several grievances have been received from the taxpayers that they are in receipt of 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. 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 under section 206CB of the Act, as the case maybe.
With a view to redressing the grievances faced by such deductors/collectors, the Board, in partial modification and in continuation of the Circular No. 3 of 2023, hereby specifies that there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC of the Act, as the case maybe, in the following cases:
i. Where the amount is paid or credited from 01.04.2024 to 31.07.2025 and the PAN is made operative (as a result of linkage with Aadhaar) on or before 30.09.2025.
ii. Where the amount is paid or credited on or after 01.08.2025 and the PAN is made operative (as a result of linkage with Aadhaar) within two months from the end of the month in which the amount is paid or credited.
In the above-mentioned cases, the deduction/ collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act shall be applicable.
The Circular can be accessed at: https://incometaxindia.gov.in/news/circular-9-2025.pdf
