Is interest u/s 201 applies if the inoperative PAN is made operative?

Hi CA Rakesh,

Regarding your query:

• Section 206AA mandated higher TDS (20% or 5% etc.) if PAN was inoperative or not linked with Aadhaar (after 1 July 2023, inoperative PANs require higher TDS).

• If PAN was inoperative during Q2 FY 2023-24, then higher TDS was applicable at that time.

• Even if the vendor links Aadhaar now (in November) and PAN becomes operative after Q2, it does not retroactively exempt the higher TDS requirement for Q2.

• So, for Q2 period, higher TDS was applicable and the demand and interest on short deduction stands.

• For future quarters (Q3 onwards), once PAN is operative, higher TDS under section 206AA will not apply.

Interest u/s 201(1A) is also applicable on the amount of short deducted TDS during the period when PAN was inoperative and higher deduction was required but not done.

In short:

• Higher TDS was mandatory for Q2 when PAN was inoperative.

• Late linking PAN to Aadhaar will not exempt the short deduction demand or interest for that period.

• Interest under section 201(1A) applies on the short deducted amount for that period.

Let me know if you want a detailed case law or CBDT circular references.