Income Tax Update: CBDT Extends Deadline for PAN-Aadhaar Link to Avoid Higher TDS Deductions

Income Tax Update: CBDT Extends Deadline for PAN-Aadhaar Link to Avoid Higher TDS Deductions

New Delhi: Central Board of Direct Taxes (CBDT) has issued Circular No. 9/2025, dated 21st July 2025, which provides relief taxpayers and firms facing issues due to inoperative PANs under Rule 114AAA of the Income-tax Rules, 1962.

This circular partially modifies the earlier Circular No. 3 of 2023 issued by the Income Tax Department.

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What was the Previous Rule

As per previous rules, if a PAN was not linked with Aadhaar, it became inoperative from 1st July 2023. This caused higher collection of TDS/TCS under sections 206AA and 206CC of the Income Tax Act, 1961. In multiple cases, notices were sent and demands were raised against deductors and collectors for not applying higher TDS/TCS rates by the IT Department.

What are the new rules?

Considering the grievances received from taxpayers, the CBDT has now decided that no penalty or higher TDS/TCS will apply in the following cases:

1. If the payment was made between 1st April 2024 and 31st July 2025, and the PAN becomes operative (i.e., linked with Aadhaar) by 30th September 2025.
2. If the payment is made on or after 1st August 2025, and the PAN becomes operative within two months from the month of payment.

However, in all such cases, standard TDS/TCS deductions under other applicable provisions of the Income Tax Act will still be applicable.

This will provide relief to deductors and collectors who were earlier being penalized despite genuine efforts to comply with rules. Taxpayers are advised to link their PAN card number with their Aadhaar card before the deadlines to avoid future problems.

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This clarification was issued by the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, with the approval of the competent authority to reduce undue burden on taxpayers.