Inoperative pan of seller

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KSHITIJ Bedmutha (Querist)
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04 August 2024
I have recieved short deduction notice due to inoperative pan of seller.(notice on 28 july, deal on 26 th july 2024)
I have paid only 10 percent of deal value ( approx 20 lacs) to buyer rest is to be paid by bank loan(which currently i have put on hold)
Short deduction is around 40 lacs.
Can I cancel this form 26 qb and ask the buyer to link his adhar and pan card
And file for new challan

My query is what happens to
1)my short deduction notice
2)What are the requirements to cancel challan.Will they ask for cancelled sale agreement deed
3)Is it the way out or i have to ask bank to pay tds from this amount and if i cut 40 lacs how many days can buyer get refund.
4) can i appeal to income tax officer after buyer links adhar pan card to revise short deduction notice
Thanks and regards

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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13 August 2025 This is a sensitive TDS issue arising from a PAN-Aadhaar linking problem on the seller's side. You're facing a short deduction notice under Section 194-IA, despite deducting TDS @1% correctly — but the seller’s PAN is inoperative, so the system deems the deduction rate should have been 20%, triggering a large "shortfall" (₹40 lakhs on a ₹2 crore deal).
Let’s go point by point to address your queries and give you a clear path forward.

✅ Summary of Your Situation:
Date of Deal: 26 July 2024
TDS Filed via Form 26QB: Deducted @1%, paid on ₹20 lakhs (10% of deal value)
PAN of Seller: Inoperative (due to not linking with Aadhaar)
Short Deduction Notice Received: 28 July 2024
Loan Pending: ₹1.8 crore, not yet disbursed
You’re considering canceling 26QB and refiling after seller links PAN–Aadhaar
🔍 Your Key Questions Answered:
1) Can I Cancel Form 26QB and File a New One Later?
Technically: No, Form 26QB cannot be cancelled once the challan is generated and payment is made.
However, you can request correction through the TIN-NSDL system or approach the TDS Assessing Officer for rectification if there is a valid case (e.g., PAN now linked and operative). But cancellation is not an available option through the portal.

2) What Happens to the Short Deduction Notice?
Once the seller links PAN–Aadhaar and it becomes operative, you can:
File a response to the short deduction notice on the TRACES portal
Attach proof that PAN is now active (download PAN status or use e-verification printout)
Request rectification via TDS AO if portal doesn't auto-rectify
If the TDS has not yet been deposited for the remaining 90% (₹1.8 crore), you can deduct correctly (i.e., @1%) when that payment is made, assuming PAN is now operative
➡️ If PAN remains inoperative on date of payment, you must deduct @20% or you'll continue to get notices.
3) Requirements to Cancel Challan? Will They Ask for Cancelled Sale Agreement?
As mentioned, Form 26QB cannot be canceled online
However, if there was a genuine error, you can file a correction request manually through TDS AO
For this, they may ask for:
Sale agreement
Declaration from seller
Proof of PAN activation
Affidavit (in some cases)
But if your transaction is going forward, cancellation may not be helpful. Instead, wait for the seller to link PAN–Aadhaar, and request rectification.
4) What Should I Do With the Remaining 90% (₹1.8 Cr) Loan Amount?
If seller hasn't linked PAN by the date of final payment:
You must deduct TDS @20%, i.e., ₹36 lakhs instead of ₹1.8 lakhs
You cannot recover this easily from the seller
Seller may claim refund while filing return — but refund may take several months (generally within 3–6 months after ITR is processed)
➡️ So, DO NOT proceed with final payment until seller's PAN is operative
5) Can I Appeal or Rectify Notice After PAN–Aadhaar is Linked?
Yes. Once the seller links PAN and it becomes operative, you can:
Respond to the short deduction notice on TRACES portal
Upload proof of PAN activation (screenshot of PAN status)
Write a letter to TDS AO explaining the mistake, requesting to reduce the liability
Many cases have been successfully resolved this way if PAN was valid but temporarily inoperative.
✅ Suggested Action Plan:
Step Action
1 Ask seller to urgently link PAN with Aadhaar and check PAN status on Income Tax Portal
2 Once PAN is active, take a screenshot or download e-PAN
3 Respond to short deduction notice on TRACES
4 Do not proceed with bank disbursement until PAN is operative
5 If necessary, write to TDS AO with supporting docs for rectification
6 Deduct correct TDS @1% on remaining ₹1.8 crore only after PAN is fixed
✋ A Word of Caution:
If you pay the seller without fixing the PAN issue, you're personally liable for the difference (1% vs 20%)
The short deduction is on the entire consideration, not just what you've paid so far

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