The Central Board of Direct Taxes (CBDT) has issued Circular No. 9/2025 dated July 21, 2025, providing significant relief to taxpayers and deductors facing issues arising out of inoperative PANs due to non-linking of PAN and Aadhaar. However, it’s vital to note that this is not a blanket relief: the window of opportunity is limited, and taxpayers as well as deductors and collectors of tax must exercise timely vigilance.
What Triggered This Circular?
PAN that remain unlinked with Aadhaar are rendered inoperative under Rule 114AAA of the Income Tax Rules, 1962. As a result, any TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) for such PANs has been required at a higher rate—often causing financial inconvenience for both taxpayers and those deducting or collecting tax. CBDT’s earlier circulars strictly applied these consequences without grace periods, leading to numerous defaults and penal notices, especially where the PANs were later linked.
What Does Circular 9/2025 Change?
1. Grandfathering Past Transactions
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Payments/Credits between April 1, 2024 and July 31, 2025:
If the deductee’s PAN was inoperative at any point during this period, there will be no requirement to deduct/collect tax at the higher rate (under section 206AA/206CC), provided the PAN is made operative (i.e., linked with Aadhaar) on or before September 30, 2025.
2. Prospective Relief for Future Transactions
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Payments/Credits on or after August 1, 2025:
For any amount paid or credited after July 31, 2025, standard TDS/TCS rates will apply only if the PAN is linked with Aadhaar within 2 months from the end of the month in which the transaction occurred. If not, the higher TDS/TCS rate will kick in retroactively.
3. Practical Points for Businesses (Deductors/Collectors)
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Not Automatic Relief:
The relief is strictly conditional. If the PAN is not linked within the prescribed window, higher TDS/TCS demands will be raised as before. -
Ongoing Vigilance:
For every new vendor, employee, or payee added from now onwards, deductors must check upfront if PAN-Aadhaar linking is completed. If not, the deductee should be informed and linkage should be completed within 2 months of the relevant deduction or payment—else, the onus to deduct at a higher rate falls back on the deductor. -
Record-Keeping:
Maintain documentation/proof of PAN-Aadhaar linkage for each payment cycle to handle future assessments or queries smoothly.
Action Points for Taxpayers and Businesses
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Link PAN and Aadhaar promptly. Delay can mean loss of any benefit from this relief scheme for past periods or application of punitive higher TDS/TCS going forward.
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For Deductors/Collectors: Implement a process to verify Aadhaar-PAN linking status before any payment or credit to a vendor/employee. Set reminders to check linkage status within the allowed 2-month grace period for payments after August 2025.
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Understand that this relief is transitional and conditional. Post this window, compliance gaps will cause the higher deduction rate consequences to return in full force.
FAQ
Q: Is relief available if I link PAN and Aadhaar after September 30, 2025 for payments made before July 31, 2025?
No—the linkage must be completed by September 30, 2025 for relief on past periods. The 2-month window applies only for payments/credits on or after August 1, 2025.
Q: Does the relief apply if PAN is not linked even after these deadlines?
No, higher TDS/TCS rates are mandatory in such cases, and deductors/collectors will remain liable for short deduction or collection.
Conclusion
CBDT’s Circular 9/2025 is a welcome, taxpayer-friendly move, but with riders attached. The relief from higher TDS/TCS is only available if the stipulated timelines for PAN-Aadhaar linkage are met. For businesses, this reinstates the importance of due diligence each time a new payee is added. With PAN inoperativity having far-reaching consequences, proactive compliance and constant monitoring are now more crucial than ever
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