Tds penalty for in operative pans

• Notice is due to inoperative PAN → higher TDS required

• Make PAN operative now, but past default remains

• Best solution: Form 26A via CA if deductee paid tax

• Interest may apply; penalty usually avoidable

• Future TDS: verify PAN operativity before deduction

Applicable Law / Notification / Circular

• Section 206AA of Income-tax Act, 1961: Mandates TDS at higher rate (20%) if PAN is not furnished or is inoperative.

• Rule 114AAA: States that an inoperative PAN is deemed as "PAN not furnished."

• CBDT Circular No. 9/2025 (dated 21st July 2025): Provides conditional relief from short deduction liability if the PAN is made operative within specific deadlines.

Short Practical Answer

You must immediately check if your deductees have linked their PAN and Aadhaar. If they link it (and make the PAN operative) within the deadlines set by Circular 9/2025, the demand will be dropped, and you will not be treated as a defaulter. If the deadlines are missed, you are liable to pay the difference between the 20% rate and the actual rate deducted, plus interest.

Detailed Steps to Clear the Issue

Step 1: Determine the "Relief Category" based on Transaction Date

The CBDT has provided amnesty windows. Check the date you deducted the tax (Transaction Date) against the table below. (Note: Current date is Dec 13, 2025).

Step 2: Analyze Your Specific Situation

• Scenario A: Deductee Linked PAN Before the Deadline

  If the deductee linked their PAN by the deadline (e.g., by Sep 30, 2025), the notice is a "False Positive."

  • Action: File a reply on the TRACES portal stating that per Circular No. 9/2025, the PAN was operative by the cutoff date. Request a reprocessing of the return.

• Scenario B: Deductee Linked PAN After the Deadline (or still hasn't linked)

  The relief does not apply. The law treats the PAN as missing for that period.

  • Action: You are liable for the shortfall.

  • Computation: (Tax @ 20% - Tax Actually Deducted) + Interest @ 1.5% per month.

Step 3: How to Resolve/Pay (If Liable)

1. Download Justification Report: Log in to TRACES > Defaults > Request for Justification Report. This will show the exact short deduction amount row-by-row.

2. Verify PAN Status: Use the "PAN Verification" tool on TRACES to confirm if the PAN is currently operative.

3. Deposit the Shortfall: Use Challan ITNS 281.

   • Minor Head: 400 (TDS on Regular Assessment).

   • Amount: The principal short deduction amount + Interest calculated.

4. File Correction Statement:

   • Log in to TRACES > Defaults > Request for Correction.

   • Tag the new challan to the shortage.

   • Do not update the PAN if it was truly inoperative at the time; just pay the difference. (Updating the PAN field won't help if the system knows it was inoperative).

Caveats & When Human Review Is Needed

• Recovery from Deductee: Legally, the liability is on you (the deductor). However, you can request the deductee to reimburse you for the extra tax paid, as it was their compliance failure.

• Recent Deductions: If you deducted tax in October or November 2025, you still have time (2 months) to get the deductee to link their PAN. Push them urgently to avoid the 20% liability.

Mr. Vyaz, will it be possible for you to share detailed steps for ONLINE correction for such scenarios?

I am facing a similar situation for Q4 FY 25-26 return. 14K TDS for rent, return filed on 30th May 2026, got demand for 14.7K (14K + 0.7K) on 12th Jun saying that PAN is inoperative, so after reading about this new change (new to me), I paid the challan in Aug  but since then I am not able to understand how do I actually correct the TDS rate and amount in return.

I am easily able to add the 14.7K challan to the statement but when I change the TDS rate and amount in original deductee from original challan, tds portal throws error about insufficient balance in challan (since original challan was only for 14K).

So, can you please tell me how do I correct the TDS rate and amount and also clear my demand.

Regards

Pushkar Yadav