CBDT Circular 9/2025: PAN-Aadhaar Linking Relief for TDS/TCS Defaults Explained

I. Introduction and Context

In response to numerous representations received from stakeholders and tax deductors/collectors, the Central Board of Direct Taxes (CBDT) has issued Circular No. 9/2025 dated 21st July 2025, granting substantial relief in cases where Permanent Account Numbers (PANs) were treated as "inoperative" under Rule 114AAA of the Income-tax Rules, 1962, but were subsequently made operative upon linkage with Aadhaar.

This Circular aims to address a recurring grievance wherein system-generated demands were raised under Sections 200A and 206CB of the Income-tax Act, 1961, for short deduction or short collection of tax, even though the deductee's/collectee's PAN became operative shortly after the transaction. Such demands typically arose due to automated processing systems not accounting for post-facto compliance.

Circular No. 9/2025 provides time-bound relief from the higher rate provisions of Sections 206AA and 206CC, extending and supplementing the earlier reliefs granted under Circular No. 3/2023 and Circular No. 6/2024.

II. Summary of Relief Provisions Under Circular No. 9/2025

Subject to the above timelines being met, the deductor/collector shall not be treated as "assessee in default" under Sections 206AA/206CC, and the regular provisions of Chapter XVII-B or XVII-BB shall apply.

III. Legal Framework

1. PAN-Aadhaar Linkage and Rule 114AAA

• Under Rule 114AAA, any PAN not linked with Aadhaar by the prescribed deadline is deemed to be "inoperative".
• The consequences include:
• Denial of refunds,
• Ineligibility for interest on refunds,
• Higher TDS/TCS at 20% under Sections 206AA and 206CC.

2. Provisions under Sections 206AA and 206CC

• Both sections mandate TDS/TCS at 20% or the applicable rate, whichever is higher, where the deductee or collectee fails to furnish a valid, operative PAN.
• System-based processing under Sections 200A (TDS) and 206CB (TCS) has resulted in automatic generation of intimation-cum-demand where PAN status is reflected as "inoperative" during the period of transaction.

3. Previous CBDT Circulars

• Circular No. 3/2023 (dated 28.03.2023): Operationalised Rule 114AAA with effect from 1st July 2023 and clarified the consequences of inoperative PANs.
• Circular No. 6/2024 (dated 23.04.2024): Extended relief for transactions executed up to 31st March 2024, provided the PAN became operative by 31st May 2024.

IV. Applicability and Relief Conditions

1. Transactions between 1st April 2024 to 31st July 2025

If the deductee/collectee's PAN becomes operative on or before 30th September 2025, no liability shall arise under Sections 206AA/206CC, provided tax has been deducted or collected at the prescribed normal rates.

2. Transactions on or after 1st August 2025

If the PAN becomes operative within two months from the end of the month in which payment or credit occurs, the deductor/collector shall similarly not be held liable for non-deduction/collection at the higher rate.

3. Residual Application

In all other cases where the above timelines are not met, the provisions of Chapter XVII-B and XVII-BB, including the higher rate mandates, shall continue to apply.

V. Compliance Guidance for Stakeholders

A. For Deductors and Collectors

B. For Deductees and Collectees

It is advisable for all taxpayers to immediately link PAN with Aadhaar to:

• Avoid deduction/collection at higher rates,
• Ensure timely refund issuance,
• Prevent processing delays or compliance mismatches.

VI. Procedure for Claiming Refund of Excess TDS/TCS (if higher rate applied)

1. File a TDS/TCS Correction Statement

• Log in to TRACES → go to Statements / Payments → Request for Correction.
• Update the TDS/TCS rate to the correct rate (e.g., 1%/5%) where Circular 9/2025 applies.
• Use appropriate flags "PNOP" (PAN Now Operative Post Payment) or "POPR" (PAN Operative Post Return Filing).

2. Submit Form 26B (Refund Request)

• Navigate to TRACES → Request for Refund.
• Choose "Refund due to excess deposit" and auto-fill based on the corrected return.
• Digitally sign and submit Form 26B online.
• Submit a signed physical copy to:
• Jurisdictional AO (if refund ≤ ₹50 lakh), or
• Additional CIT (if refund > ₹50 lakh).
• Monitor status under "Track Refund Request". Typical refund timeline is 4-6 weeks.

VII. Summary Timeline: CBDT Circulars on PAN-Aadhaar Linkage

VIII. Concluding Note

Circular No. 9/2025 provides welcome relief by recognising the practical compliance efforts of deductors and collectees. By carving out specific grace periods and updating the system logic, the CBDT has attempted to balance administrative efficiency with taxpayer fairness. However, timely action, documentation, and rectification are essential to avail of the benefits under this Circular.

For any assistance with TDS return filing, claiming refunds, or resolving issues related to Income Tax or GST compliance, including litigation or return processing, feel free to contact me at +91-9818640458 or via email at varunmukeshgupta96@gmail.com.