Income Tax Update: PAN-Aadhaar Linking by September 30 Can Save You from Higher TDS and TCS Rates

In a major relief for taxpayers and businesses, the Central Board of Direct Taxes (CBDT) has extended the window to avoid higher TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) rates. If you link your PAN with Aadhaar by September 30, 2025, you can escape the penalties associated with inoperative PAN cards.

This update is critical for individuals and businesses who may have received notices due to applying standard TDS or TCS rates despite the recipient’s PAN being inactive.

Why Is This Important?

According to Rule 114AAA of the Income Tax Rules, if your PAN is not linked with your Aadhaar, it becomes inoperative. Consequently, under Section 206AA (for TDS) and Section 206CC (for TCS) of the Income Tax Act, higher tax rates apply.

Over the past few months, many taxpayers and businesses have received default notices because they deducted or collected tax at regular rates without realizing the other party’s PAN was inactive. These errors led to potential penalties and compliance issues.

CBDT’s Latest Relief Circular Explained

In response to continued taxpayer concerns, CBDT has extended relief through a circular that covers two key periods:

✅ For Payments Made Between April 1, 2024, and July 31, 2025:

If the concerned party activates their PAN by linking it with Aadhaar on or before September 30, 2025, then no higher TDS or TCS rates will be applied for that entire duration.

✅ For Payments Made On or After August 1, 2025:

If the PAN is made operative within two months from the end of the month in which the payment was made, then again, higher tax rates will not apply.

What This Means for Taxpayers and Businesses

This move provides clarity and significant relief for those who faced compliance issues despite intending to follow the rules. Here’s what it means for you:

• You won’t be held responsible for deducting or collecting tax at higher rates if the recipient's PAN becomes operative within the stipulated timelines.

• Standard TDS or TCS rates will be applicable if you comply with the updated deadlines.

What Should You Do Now?

To stay compliant and avoid unnecessary penalties, here’s what you should do immediately:

• 🔗 Link your PAN with Aadhaar if you haven’t done so yet. The last date to do this without facing higher tax rates is September 30, 2025.

• 📩 If you’ve received a default notice for low deduction or collection, verify whether your case falls under the new relief window.

• 📄 Keep proper documentation proving that your PAN was activated within the allowed timeline as per CBDT guidelines.

Final Thoughts

This extension is a timely relief for thousands of taxpayers and businesses who were caught off-guard by technical defaults related to inactive PAN cards. It also signals the government’s intention to offer flexibility while encouraging timely PAN-Aadhaar compliance.

By linking your PAN and Aadhaar before the extended deadline, you can avoid penalties, maintain smooth transactions, and stay compliant with India’s evolving income tax regulations.

🔍 Stay alert, stay compliant — and don’t miss the September 30 deadline!