A recurring difficulty in TDS/TCS compliance is that tax may have been deducted or collected at the normal rate, but during processing the Department raises a higher-rate demand because the payee’s or collectee’s PAN was “inoperative” on account of non-linking with Aadhaar. This issue has become especially important in property transactions under section 194-IA and Form 26QB, as well as in other withholding provisions governed by sections 206AA and 206CC. The position today is not governed by one circular alone. It is governed by a chain of statutory provisions, notifications, CBDT circulars and portal clarifications, and the relief depends heavily on the date of transaction, the date on which PAN became operative, and whether the person falls in an exempt category.
This article sets out the complete official framework relevant to this issue and, more importantly, explains what an assessee or deductor should do where the case does not fit within the relaxation windows.
This article examines the various remedial options available for correction, rectification, challenge, or removal of such demand. Since the appropriate course of action depends upon the precise facts, timeline, and procedural status of each case, the remedy should be selected carefully and in accordance with the merits of the particular matter. In case any doubt still remains after reading the article regarding the most suitable option for your case, you may contact me at the details provided at the end of the article.
Basic statutory setting
Section 139AA requires specified PAN holders who are eligible for Aadhaar to intimate Aadhaar in the prescribed manner. The exempt classes are separately recognised in the official Aadhaar-link FAQ and trace back to Department of Revenue Notification No. 37/2017 dated 11.05.2017. Those exempt classes include individuals residing in Assam, Jammu and Kashmir, and Meghalaya; non-residents under the Income-tax Act; persons aged eighty years or more at any time during the previous year; and persons who are not citizens of India. If a person is in one of these exempt classes, the PAN–Aadhaar linkage requirement does not apply in the ordinary course.
The operational rule for an inoperative PAN is Rule 114AAA. CBDT Circular No. 03/2023 dated 28.03.2023 records that Rule 114AAA was substituted by Notification No. 15 of 2023 dated 28.03.2023. The same circular clarifies that where a person fails to intimate Aadhaar in accordance with section 139AA read with Rule 114AAA, consequences follow once PAN becomes inoperative, including non-issue of refund, denial of interest on refund for the inoperative period, higher TDS under section 206AA, and higher TCS under section 206CC. These consequences were stated to take effect from 01.07.2023 and continue until the PAN becomes operative.
Complete official circular and notification chain relevant to this issue
For practical purposes, the principal department-issued instruments relevant to the PAN–Aadhaar / inoperative PAN / higher TDS-TCS issue are the following.
First, Notification No. 37/2017 dated 11.05.2017 identified the broad classes of persons for whom Aadhaar-PAN linkage is not compulsory. This remains important because if the deductee or collectee falls in this exempt class, the entire higher-rate demand may itself be misconceived.
Second, CBDT Circular No. 07/2022 dated 30.03.2022 was the earlier departmental circular dealing with the linkage consequences and the fee framework. However, Circular No. 03/2023 later expressly stated that Circular No. 07/2022 stood superseded. Therefore, Circular No. 07/2022 is of historical relevance, but it is not the controlling circular for the current inoperative PAN consequence regime.
Third, Notification No. 15/2023 dated 28.03.2023 substituted Rule 114AAA, and CBDT Circular No. 03/2023 dated 28.03.2023 then clarified the consequences of PAN becoming inoperative. This is the foundational circular for the present framework. It states that higher TDS under section 206AA and higher TCS under section 206CC apply from 01.07.2023 where PAN is inoperative, subject to the section 139AA(3) exemption class.
Fourth, CBDT Circular No. 06/2024 dated 23.04.2024 granted a limited relaxation for old transactions. As later officially described by the Government, this circular provided that for transactions entered into up to 31.03.2024 , if PAN became operative by 31.05.2024 , the deductor or collector would not be required to apply higher TDS/TCS under sections 206AA/206CC. This was a date-specific relief and not a general waiver.
Fifth, CBDT Circular No. 08/2024 dated 05.08.2024 gave a very specific relaxation for death cases. The Government’s official press release states that where the deductee or collectee died on or before 31.05.2024 before exercising the option to link PAN and Aadhaar, there would be no liability on the deductor or collector to deduct or collect tax under sections 206AA/206CC for transactions entered into up to 31.03.2024 . This circular is narrow and applies only to the death scenario.
Sixth, CBDT Circular No. 09/2025 dated 21.07.2025 partially modified Circular No. 03/2023 for later transactions. The official CBDT circular index identifies Circular No. 09/2025 as the relevant modification, and the circular text as surfaced in search results shows that it extends relief for amounts paid or credited from 01.04.2024 to 31.07.2025 where PAN became operative on or before 30.09.2025 and for amounts paid or credited on or after 01.08.2025 where PAN becomes operative within two months from the end of the month in which the amount is paid or credited.
As of the official CBDT circular index last updated on 29.10.2025, I do not find a later circular modifying the old 31.05.2024 cut-off for transactions entered into up to 31.03.2024. So, for old-period cases, the departmental position still turns on Circular No. 06/2024 and, in death situations, Circular No. 08/2024.
When relief is available under the circulars, and when it is not
The circular-based relief must be read transaction-date wise.
If the transaction was entered into up to 31.03.2024, relief is available under Circular No. 06/2024 only where PAN became operative on or before 31.05.2024. For the same old block of transactions, Circular No. 08/2024 separately protects death cases where the deductee or collectee died on or before 31.05.2024 before linkage could be completed.
If the amount was paid or credited from 01.04.2024 to 31.07.2025, the later Circular No. 09/2025 applies, and the outer date for making PAN operative is 30.09.2025. If the amount was paid or credited on or after 01.08.2025 , Circular No. 09/2025 gives relief if PAN becomes operative within two months from the end of the month of payment or credit.
Therefore, a person may have a genuine grievance and still not qualify for automatic departmental relief. For example, if the transaction belongs to the old period up to 31.03.2024, but PAN became operative only after 31.05.2024 , the case ordinarily falls outside Circular No. 06/2024 unless it is covered by the death-specific Circular No. 08/2024 or by the exempt category under section 139AA(3) read with Notification No. 37/2017.
What if the assessee does not fall within the notification or circular relief?
This is the most practical part of the issue. Once the assessee or deductor realises that the case does not squarely fit within the CBDT relaxation windows, the matter should not be treated as automatically closed. The next question is whether the demand is based on a data problem , a processing problem , or a substantive non-eligibility problem . The course of action changes accordingly.
The first check should always be whether the person was actually exempt from mandatory Aadhaar-PAN linkage. If the deductee or collectee belonged to an exempt class under section 139AA(3) and Notification No. 37/2017, the PAN ought not to have been treated as inoperative in the first place. In such a case, the issue is not merely one of relaxation; it is a question whether the very premise of higher-rate demand is wrong.
The second check should be whether there is any factual defect in the underlying filing. TRACES presently provides a dedicated correction functionality for Form 26QB / 26QC / 26QD , and the taxpayer registration flow itself refers to correction based on previously filed 26QB details such as acknowledgement number, PAN of buyer, amount paid or credited, and PAN of seller. Similarly, the portal’s challan correction user manual permits correction of certain challan fields on the e-filing portal for eligible challans. Where the demand arises because of incorrect PAN entry, wrong challan mapping, wrong amount, wrong statement particulars, or similar factual defects, the correction route should be used immediately.
The third check is whether the demand can be disputed administratively on the portal itself. The Income-tax portal provides a Response to Outstanding Demand service through which a registered user can view the demand, access the status, and submit a response. The grievance module also specifically recognises CPC-TDS as a department for grievances, and it expressly includes categories for 26QB/26QC/26QD/26QE related issues , defaults related issues , and TDS on sale of property . This route is often useful where the assessee wants the Department to reconsider the demand, review the statement, or acknowledge a factual mismatch.
The fourth route is rectification under section 154 , but this has to be used with discipline. Section 154 is meant for a “mistake apparent from the record.” The official statutory text on the Department’s site also states that no amendment under section 154 can be made after four years from the end of the financial year in which the order sought to be amended was passed . Therefore, rectification is useful where the Department’s demand reflects a clear record-based mistake, such as wrong processing logic, non-consideration of an already operative PAN at the time of reprocessing, internal inconsistency in the intimation, or some other patent defect. It is less effective where the Department’s stand is simply that the assessee missed the circular cut-off and therefore does not qualify.
The fifth route is a statutory appeal. The Form 35 user guidance on the official portal states that Form 35 is available to an assessee or deductor aggrieved by an order of the Assessing Officer, and the official FAQ states that an appeal before CIT(A) is to be filed within 30 days from the date of service of the order or demand, as the case may be. The Department’s appellate manual further notes that a delayed appeal can be admitted where sufficient cause exists. So, if the issue is no longer a portal or data correction issue and has become a legal dispute on the survival of the 20% demand, appeal becomes the more structured remedy.
Practical step-by-step course of action where demand exists and circular relief is unavailable
The most prudent sequence is as follows.
First, download and review the intimation, justification report, and demand details carefully. One should not proceed merely on the basis of the figure reflected on the portal. The exact nature of the demand must be identified, namely whether it is a short-deduction demand on account of higher-rate applicability, whether interest or fee has also been loaded, and whether there is any PAN, challan, or statement mismatch. The e-Filing portal separately provides the facility to view and submit a response to outstanding demand, and therefore the assessee should first understand the precise basis on which the demand has been raised.
Second, verify whether the deductee or collectee falls in any category exempt from mandatory PAN-Aadhaar linkage under section 139AA(3) read with the relevant notification framework. If the person was itself outside the compulsory linkage requirement, then the PAN ought not to have been treated as inoperative, and the objection should be raised at the very threshold.
Third, if there is any factual defect in the originally filed Form 26QB, such as wrong PAN, wrong amount, wrong acknowledgement linkage, wrong challan particulars, or similar statement-level error, the assessee should initiate the 26QB correction process immediately . The Department's TDS correction statement guidance recognises that mistakes in original TDS/TCS statements can be corrected by filing a correction statement, and the TRACES / taxpayer workflow separately supports Form 26QB / 26QC / 26QD correction. Since Form 26QB is itself a challan-cum-statement for TDS on transfer of immovable property, it should be treated with the same seriousness as a TDS statement for correction purposes.
At this stage, speed is legally important . The current official e-Filing portal carries a specific notice that TDS/TCS correction statements for FY 2018-19 (Q4) to FY 2023-24 (Q3) should be submitted by 31.03.2026 , and that from 01.04.2026 such filings become time-barred in view of the repeal transition under the new law. The same portal notice also states that under section 397(3) of the Income Tax Act, 2025 , corrections are generally allowed within two years from the end of the relevant tax year. Therefore, where a Form 26QB transaction falls in FY 2023-24 and any correction is required, the assessee should act promptly and without waiting, because delay may shut out the correction route itself. In practical terms, once the correction window is lost, the assessee may be left only with rectification, grievance, or appellate remedies, which are typically more contested and time-consuming.
Fourth, file a Response to Outstanding Demand and also lodge a CPC-TDS grievance wherever the matter relates to Form 26QB, defaults, or TDS on sale of property. This creates an administrative record that the demand has been disputed and that a specific factual or legal objection has already been raised before the Department.
Fifth, consider a section 154 rectification request where the case truly involves a mistake apparent from the record. Rectification is appropriate where the demand reflects a patent processing error, a non-consideration of corrected data, an inconsistency in the intimation, or some other clear record-based mistake. However, if the Department’s stand is simply that the assessee does not satisfy the cut-off laid down in the relevant CBDT circular, then the controversy may move beyond a mere rectification issue into a substantive legal dispute. The rectification facility on the portal is available for mistakes apparent from the record in processed intimations or orders.
Sixth, where the dispute is fundamentally legal and not merely factual, the assessee should be prepared to pursue the statutory appellate remedy. The grievance route, demand response, and correction route are important, but they do not replace the need for a formal remedy where the Department continues to sustain the demand despite objections.
If you want, I will now integrate this revised Point 6 into the full article and give you the complete final article in one continuous professional format.
What should not be assumed
It should not be assumed that merely because PAN is eventually linked, every earlier higher-rate demand will automatically disappear. The Department’s circulars do not adopt such a blanket proposition. Relief depends on whether the case falls within the precise dates and conditions of Circular No. 06/2024, Circular No. 08/2024, or Circular No. 09/2025. If it does not, one must move from the relaxation framework to the remedial framework.
It should also not be assumed that a portal grievance alone is a substitute for a statutory remedy. The grievance and demand-response modules are important and useful, but they are administrative tools. Where the demand survives and the controversy becomes legal in nature, the statutory remedies under section 154 and Form 35 must be considered separately and in time.
Conclusion
The official position today is clear in one respect: the PAN–Aadhaar higher TDS/TCS issue is governed by a defined chain of departmental instructions, namely Notification No. 37/2017, Circular No. 07/2022 historically, Notification No. 15/2023, Circular No. 03/2023, Circular No. 06/2024, Circular No. 08/2024, and Circular No. 09/2025. These instructions do provide relief, but the relief is conditional and date-specific. They do not create a universal waiver for all old demands once PAN is linked later.
Accordingly, where an assessee does not fall within the notification-based exemption or the circular-based relief windows, the correct approach is not to rely on assumption or informal understanding. The correct approach is to examine exemption eligibility, test the accuracy of the underlying Form 26QB or statement data, use correction and portal-response mechanisms where applicable, invoke section 154 where there is a record-based error, and move to appeal where the dispute is substantive and the demand continues. That is the most structured and defensible course in such matters.
The author can also be reached at varunmukeshgupta96@gmail.com
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