Did you deduct TDS at a lower rate due to PAN-Aadhaar linking issues? The CBDT's new circular dated 21st July 2025 offers relief from the 20% TDS rule for inoperative PANs. Learn how it impacts past and future transactions, and what steps you must take before 30th September 2025.

Let me begin with the basics.

It is mandatory for all resident individual taxpayers to link their PAN with Aadhaar. If this is not done, the PAN becomes "inoperative" although technically still active, it results in serious consequences. One such consequence is that TDS must be deducted at 20% instead of the applicable lower rate (e.g., 1% for property purchases), as per Section 206AA of the Income Tax Act.

Take the case of Mr. Dinesh, who purchased a property in September 2024 from Mr. Kalyan for ₹1 crore. Under section 194-IA, Dinesh is supposed to deduct 1% TDS, i.e., ₹1,00,000. Suppose Mr. Kalyan's PAN was inoperative at the time of deduction, Dinesh would be legally required to deduct 20%, i.e., ₹20,00,000, a whopping 19 times the normal amount!

In practice, it’s difficult to know whether a PAN is operative or not at the time of payment, even though the TDS payment portal flashes a scrolling message. Due to such technical and practical challenges, thousands of taxpayers inadvertently deducted tax at the lower (normal) rate, only to be later served with hefty tax demands by the department.

Can You Imagine?

For a simple oversight or technical error, a deductor is penalised disproportionately. Is it fair to expect a buyer to pay ₹20 lakh instead of ₹1 lakh for no fault of their own? Certainly not.

The Cure Is Here!

Responding to numerous grievances, the CBDT issued a circular dated 21st July 2025, providing relief to such taxpayers. The key takeaways are:

For Past Transactions:

TDS deducted between 1st April 2024 and 31st July 2025: If the PAN of the deductee (the payee) was inoperative at the time of TDS, but the PAN is made operative on or before 30th September 2025, the higher 20% TDS rate will not apply.

For Future Transactions (from 1st August 2025): If the deductee’s PAN is inoperative at the time of payment/credit, no higher rate of TDS will apply if the PAN is made operative within 2 months from the end of the month in which the payment is made.

What about TDS deducted before 1st April 2024? That was addressed through CBDT Circular dated 23rd April 2024, which provided similar relief.

My Suggestions to the Tax Department

1. Fix it through the system: A simple change in the TDS payment utility can solve this forever. If the PAN is inoperative, the portal should not allow payment of TDS at a lower rate. It should auto-calculate 20% unless PAN is verified as operative. Why make taxpayers suffer due to avoidable manual errors?
2. Extend the window: Why only a 2-month window for rectification? It would be more practical and fairer to allow the deductee time till 2 months from the end of the financial year instead.

My Suggestions to Taxpayers

• Always check PAN status before deducting TDS. Especially in cases of property transactions, verify whether the deductee’s PAN is operative.
• For NRIs / OCIs: There is no requirement to link Aadhaar if they don’t have. However, if their PAN is inoperative, they should email the jurisdictional Assessing Officer requesting activation, citing their NRI status. (Ask me if you need any assistance on this)
• For those who already received notices: Ensure the deductee’s PAN is made operative before 30th September 2025 to avoid the 20% TDS demand.

If you need more information or help on this matter, feel free to email me at  This email address is being protected from spambots. You need JavaScript enabled to view it. or text 98457 21255.