If PAN-Aadhaar Are Not Linked by May 31, Double TDS Will Apply: Details to Avoid Penalty

The Income Tax Department recently issued a notification urging taxpayers to link their Permanent Account Number (PAN) with Aadhaar by May 31 to avoid higher tax deductions. According to current regulations, if a taxpayer’s PAN is not linked with Aadhaar, Tax Deducted at Source (TDS) will be deducted at twice the usual rate. “Linking your PAN with Aadhaar by May 31 ensures you avoid higher tax deductions or collections under Sections 206AA and 206CC of the Income Tax Act, 1961, due to an inoperative PAN for transactions entered into before March 31, 2024,” the I-T Department announced on social media platform X, formerly Twitter.

In April, the Central Board of Direct Taxes (CBDT) stated that deductees must link their PAN and Aadhaar by May 31, 2024, to prevent the deductor from facing penalties for not deducting higher TDS. The CBDT’s circular added that for transactions up to March 31, 2024, if the PAN becomes operative due to linkage with Aadhaar by May 31, 2024, there will be no liability on the deductor to deduct/collect tax under Sections 206AA/206CC. Instead, other provisions of Chapter XVII-B or XVII-BB of the Act will apply. The CBDT also clarified the rules and consequences of not linking PAN with Aadhaar.

Section 139AA of the Income Tax Act mandates that individuals with a PAN as of July 1, 2017, and eligible for Aadhaar must link the two. The PAN will become inoperative if not linked with Aadhaar by June 30, 2023, except for those in the exempted category.

Consequences of an inoperative PAN include:

• No tax refunds
• No interest on tax refunds during the period of inoperativeness
• Higher tax deduction rates under Chapter XVII-B
• Higher tax collection rates under Chapter XVII-BB

The Income Tax department has also instructed reporting entities, such as banks and forex dealers, to file the Statement of Specified Financial Transactions (SFT) by the same deadline. This submission helps tax authorities monitor significant financial transactions. Entities like banks, sub-registrars, and mutual fund trustees must report financial transactions or accounts they manage during the fiscal year.

To pay late fees for Aadhaar-PAN linking:

1. Visit the official e-tax filing website and go to the Aadhaar-PAN linking section.
2. Select Challan No. ITNS 280 to submit the link request.
3. Choose applicable tax under Major Head 0021 (Income Tax Other than Companies) and Minor Head 500 (Other Receipts).
4. Select your preferred payment mode and enter necessary details, including PAN, address, and assessment year.
5. Enter the Captcha and make the payment.
6. Check the receipt of the payment on the e-filing portal, then proceed to link Aadhaar and PAN.

By adhering to these guidelines, taxpayers in the stock market, finance, and business sectors can avoid penalties and ensure smooth financial transactions.