TDS Return PAN-Inoperative instead of PAN and AADHAR already linked

[milan bamal]

Dear Team,

We filled TDS return Q-1 25-26 recently of our firm.

PAN and aadhar has been already linked of all dedutees.But TDS return processed with default i.e 2 PAN out of all PANs is Non-operative and demand 20% TDS instead of 1%.But PAN and Aadhar has been already linked as we have checked on income tax portal at Aadhar link status.

What is the solution

 

[Ryan Vaz]

• Section 206AA, Income-tax Act, 1961 – Higher TDS @20% for non-furnished PAN

• Section 139AA(2) – PAN becomes inoperative if Aadhaar not linked

• CBDT Circular No. 3/2023 dated 28-03-2023 –
  PAN becomes operative from the date Aadhaar is linked, not retrospectively

• Section 154 – Rectification of mistakes apparent on record

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Short Practical Answer

This happens due to timing mismatch.
Even if PAN–Aadhaar is linked now, CPC-TDS validates PAN status as on the date of deduction.
If Aadhaar was linked after the TDS deduction date, CPC correctly applied 20% TDS, causing demand.

Solution depends on the Aadhaar-linking date vs TDS deduction date.

[Ryan Vaz]

Detailed Steps / Resolution Options

Step 1: Verify Aadhaar Linking Date (Very Important)

For each affected deductee:

1. Login ? Income-tax Portal

2. PAN ? Aadhaar Linking Status

3. Check “Date of Linking”

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Scenario A: Aadhaar was linked AFTER TDS deduction date

? CPC-TDS demand is legally correct

What you must do:

• Deduct shortfall TDS (19%) from deductee OR

• Pay TDS yourself (grossing up if required)

• Pay interest u/s 201(1A)

• File correction statement (C1/C3 as applicable)

?? No rectification allowed in this case.

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Scenario B: Aadhaar was linked BEFORE TDS deduction date

? Demand is incorrect

Correct Remedy – File Rectification u/s 154

1. Login ? TRACES

2. Defaults ? Request for Rectification

3. Select reason:

   PAN is operative but treated as non-operative

4. Upload PDF evidence:

   • PAN–Aadhaar linking confirmation

   • Screenshot showing linking date prior to deduction

5. Submit request

? Rectification usually resolved in 30–45 days

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Step 2: If Rectification is Rejected

Escalate via:

• e-Nivaran / Grievance on Income-tax Portal

• Attach:

  • 154 rejection order

  • Aadhaar linking proof

  • TRACES justification report

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Important Practical Notes

• CPC-TDS does not auto-update PAN operative status for past periods

• Linking Aadhaar does NOT have retrospective effect (CBDT Circular 3/2023)

• Many deductors face this issue in FY 2023-24 onwards

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Action Plan (Quick Checklist)

• ? Check Aadhaar linking date vs deduction date

• ? If linked late ? Pay differential TDS + interest

• ? If linked earlier ? File 154 rectification on TRACES

• ? Keep documentary proof ready

• ? Track rectification status regularly

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When Human Review Is Needed

• If demand is large

• If deductee refuses recovery

• If multiple rectifications are rejected

• If assessment or penalty notice is issued

AI Summary

PAN-Aadhaar linkage timing can trigger higher TDS; check linking date and pursue rectification or pay differential tax. Higher TDS resulted because CPC-TDS assessed PAN operative status on the deduction date and treated PANs as inoperative where Aadhaar was not linked at that time; linking Aadhaar after the deduction date does not retroactively change CPC validation. If linking occurred after deduction, regularise by paying the differential TDS and interest and file correction statements; if linking occurred before deduction, file a rectification on TRACES with proof of the earlier linking and escalate if rectification is rejected.