Regarding the Demand Raised in TAN due to inoperative PAN.

This query is : Resolved

Avneet Kaur (Querist)
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24 December 2024 Respected Sir/ Ma'am
We recently received a notice under our client's TAN, stating a demand has been raised due to the associated PAN being marked as inoperative. In the Demand Notice received, all the employees mentioned in the list have the Total Taxable Income below Rs. 5,00,000/- in the previous Financial Year i.e., 2023-24.

So, here at this point we seek your guidance that what if we remove the entries of those employees from previous year. Will the demand be removed or it would still be standing payable?

I would greatly appreciate if you could provide insights or share the experience in dealing with a similar issue. Your guidance on the procedural and legal aspects would be extremely helpful.

Thank you in advance!

Best regards,
Avneet Kaur

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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12 August 2025 Dear Avneet Kaur,
This is a very relevant and emerging issue due to recent changes by the Income Tax Department regarding inoperative PANs and their linkage with TDS compliance.

Let’s break down your situation and what can and cannot be done.

🧾 Issue Summary:
You received a demand notice under the client's TAN.
The reason: PANs of some deductees (employees) are marked as inoperative.
Their income is below ₹5,00,000, i.e., no tax payable after rebate under Section 87A.
You’re asking: Can we revise the TDS return to remove these entries and avoid the demand?
✅ Key Clarification – Why the Demand?
The demand is likely raised under Section 206AA.
As per Section 206AA:
If PAN is not furnished or is inoperative, TDS must be deducted at higher of:
The applicable rate, or
20%
Hence, even if no TDS was required (due to income below ₹5L), if PAN is inoperative, the portal expects TDS @ 20%, and if no TDS was deposited, it shows a short deduction demand.
❌ Can You Remove the Employee Entries from the TDS Return?
No, you cannot revise the TDS return just to remove those employees retroactively.
Why?
The employees were paid salaries in FY 2023–24.
Their PANs were quoted, and salaries were disclosed in TDS return (Form 24Q).
Now trying to remove their data would be factually incorrect and may lead to:
Mismatch with Form 16 issued,
Mismatch with their ITRs,
Audit risks or penal consequences.
So, removing the entries is not a valid or safe solution.
✅ What You Can Do Instead:
🔸 Step 1: Ask employees to make their PAN operative
PAN may be inoperative due to non-linking with Aadhaar.
If they link Aadhaar now, the PAN becomes operative again, and CPC may drop the demand automatically.
🔸 Step 2: File a Condonation Request or Response to Demand
On the TRACES portal or income tax e-filing portal:
Use "Justification – PAN was inoperative but now operative"
Or submit a condonation request with documents:
PAN card,
Aadhaar card,
Proof of linking date (screenshot if needed).
You can also mention:
“The employee’s income was below ₹5,00,000 and eligible for rebate under Section 87A; hence no tax was deductible. The PAN has now been made operative. Kindly consider dropping the demand.”
If successful, this can nullify or reduce the demand.
🔸 Step 3: Wait for System Auto-Reprocessing
If PAN becomes operative, CPC sometimes automatically drops the short deduction demand. Keep monitoring the status.
🛑 Avoid These:
❌ Do not remove entries from filed TDS returns for compliance purposes.
❌ Do not ignore the demand — interest may accrue even if tax isn’t actually due.
✅ Final Summary:
Action Recommendation
Remove entries from TDS return ❌ Not advisable (false reporting)
Ask employees to activate PAN ✅ Yes (preferred step)
Respond to demand with justification ✅ Submit via TRACES or e-filing portal
Demand status after PAN activation 🟡 Often drops automatically or after manual appeal

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