TDS relief: Deductors not defaulters for short deduction in inoperative PAN cases

The Central Board of Direct Taxes (CBDT) has provided a major relief to the TDS deductors/collectors. As per a circular issued by CBDT on Wednesday, TDS deductors/collectors who have not collected the TDS at appropriate rates from the deductees whose PAN has become inoperative due to non-linkage with Aadhar from April 1 2023, will not be treated as deductors in default and no penalty will be imposed on them. 

The tax department has given this relief for transactions done till March 24, provided the PAN of the deductee is linked to Aadhar and becomes operative by May 31, 2024.  TDS deductor is supposed to deduct tax on source at double the rate in case the dedutee's PAN is inoperative, failing which he has to bear a heavy penalty.

“With a view to redressing the grievances faced by deductors/collectors who have collected TDS/TCS at normal rate but were as required to deduct/collect at double the rate on account of PAN of the deductee being inoperative due to non linkage with Aadhar from April 1, 2023, the CBDT has said not to treat such deductors in default for normal deduction for transactions entered into up to March 31, 2024, if in such cases the PAN of deductee is linked to Aadhar and hence becomes operative on or before May 31, 2024,” said Ved Jain, past president, Institute of Chartered Accountants of India (ICAI)  explaining the provision of the circular.  

“In such cases, there will be no liability on the deductor/collector under section 206AA/206CC to raise tax at double the rate because of non linkage of PAN and Aadhar and hence such deductors will not be required to pay the difference,” Jain said.  

The move comes in the wake of a number of recent notices issued to deductors for shortfall in tax deducted since PAN of deductee was found to be inoperative. 

Jain says in cases where notices have been received for short deduction because of this reason, it is advisable to reach out to the deductee and get his PAN linked with Aadhar immediately and in any case on or before 31 May, 2024, adding that this relief is for transactions up to March 31, 2024.