PAN-Aadhaar Linking Deadline Extended for Limited Time Can Save TDS Penalties

In a major relief, the Income Tax Department has announced it will cancel recent demand notices for short deduction of TDS/TCS. These notices were sent to taxpayers who applied normal tax rates to recipients whose PANs were inactive from not being linked with Aadhaar. The Department clarified that as long as the recipient reactivates their PAN within the specified time, the demand will be nullified.” This article provides a clear overview of the latest rules, deadlines, compliance steps, relief, practical scenarios, and best practices related to PAN–Aadhaar linking.

Also Read-Income Tax Refund Stuck on ‘Processing’? Here are 5 Reasons and What You Can Do

Big Relief: No Penalty If You Link Within the Deadline.

Recent Income Tax Department circular, dated July 21, 2025, provides relief for tax deductors and collectors. They will not be held in default for not applying higher TDS/TCS rates on payments made to a person with an inactive PAN, provided the PAN is activated by linking it with Aadhaar within the stipulated deadline.

According to a new rule from the Income Tax Department on July 21, 2025, if you pay someone whose PAN is inactive (because it’s not linked to Aadhaar), you won’t be penalized for not deducting tax at the higher rate, as long as they activate their PAN in time.

The latest government circular brings relief from TDS/TCS penalties if the PAN is linked and operative within the specified window:

• Transactions April 1, 2024 – July 31, 2025: If PAN is activated by September 30, 2025, no penalty for short TDS/TCS deduction will apply, and any prior demands will be cancelled or not enforced.
• Transactions on or after August 1, 2025: If PAN is activated within 2 months from the end of the month of the payment, no penalty will apply.

Latest Deadlines & Recent Extensions.

The deadline for linking PAN and Aadhaar has been extended multiple times, causing some confusion among taxpayers. The most recent updates provide a clearer picture, with specific timelines for different categories of taxpayers.

Special Extension for a Specific Category of Taxpayers.

In a significant relief, the CBDT has announced a special extension until December 31, 2025, for a specific group of individuals. This extension applies to those who were allotted a PAN based on their Aadhaar enrollment ID before October 1, 2024. These individuals can link their PAN with their Aadhaar number by the new deadline without incurring any penalty. This measure is aimed at providing relief to those who faced technical glitches or delays in obtaining their Aadhaar number.

Key Deadlines for PAN–Aadhaar Linking.

There have been several extensions. The government has issued new clarifications providing relief to taxpayers.

Who Gets the Extended Deadline? Taxpayers with PAN based on Aadhaar enrolment ID before October 1, 2024, can link by December 31, 2025, without penalty. Others must pay the penalty if they missed the deadline.

Relief from TDS/TCS Defaults: A Major Breather.

The CBDT has also provided significant relief regarding TDS and TCS defaults arising from inoperative PANs. According to a recent circular, for transactions that occurred between April 1, 2024, and July 31, 2025, where a higher TDS/TCS was deductible due to an inoperative PAN, no penalty or demand notice will be enforced if the PAN is made operative by September 30, 2025.

For transactions on or after August 1, 2025, relief is available if the PAN is linked with Aadhaar within two months from the end of the month in which the transaction took place. This is a massive relief for both deductors and deductees who were facing the brunt of higher tax deductions due to the non-linking of PAN and Aadhaar.

What is PAN–Aadhaar Linking?

Every taxpayer in India is issued a Permanent Account Number (PAN) for financial and tax purposes. Aadhaar is a unique identification number provided by UIDAI. The government has mandated linking of PAN and Aadhaar to enhance transparency, prevent tax evasion, and make digital compliance easier for everyone.

• Unifies tax identity
• Prevents duplicate or fraudulent PANs
• Enables easy access to online tax services
• Improves transparency in financial transactions

Why Is PAN–Aadhaar Linking Mandatory?

Government Rationale.

1. Prevent Tax Evasion: Linking reduces duplicate or fake PANs used for evading taxes.
2. Simplified Compliance: Integration streamlines KYC, e-filing, and refund processes.
3. Boosts Transparency: Aadhaar-based PANs improve authenticity in financial transactions.

Linking PAN with Aadhaar is compulsory for most individuals, businesses, employers, freelancers, property buyers/sellers, and senior citizens.

Who is Exempt from PAN-Aadhaar Linking?

While the mandate is for the majority of taxpayers, the government has provided exemptions for certain categories of individuals. These include:

• Non-Resident Indians (NRIs): As per the Income Tax Act, 1961.
• Individuals who are not citizens of India.
• Super Senior Citizens: Individuals aged 80 years or more at any time during the previous year.
• Residents of specified states: Including Assam, Jammu and Kashmir, and Meghalaya.

It’s important to note that these exemptions are subject to change based on government notifications. Therefore, it’s always advisable to check the latest updates on the Income Tax Department’s official website.

What Happens If You Don’t Link PAN with Aadhaar?

The term “inoperative PAN” might sound innocuous, but it has far-reaching consequences that can disrupt your financial life significantly. Here’s a detailed look at what happens when your PAN becomes inoperative:

Higher Rate of TDS and TCS.

This is perhaps the most immediate and financially draining consequence. If your PAN is inoperative, you will be subject to a higher rate of TDS and TCS on various transactions. The applicable sections of the Income Tax Act are:

• Section 206AA: This section deals with the deduction of tax at source at a higher rate if the PAN is not furnished or is inoperative. The deductor is liable to deduct TDS at the rate of 20% or the rate specified in the relevant provision of the Act, whichever is higher.
• Section 206CC: Similar to Section 206AA, this section mandates the collection of tax at source at a higher rate (usually 5% or twice the applicable rate) if the PAN is not furnished or is inoperative.

Inability to File Income Tax Returns (ITR).

An inoperative PAN will prevent you from filing your ITR. This can lead to a cascade of problems, including:

• Late filing fees and penalties: Under Section 234F of the Income Tax Act.
• Inability to claim tax refunds: Any tax refund due to you will be held back until your PAN becomes operative.
• Carry forward of losses: You will not be able to carry forward your losses to subsequent assessment years.

Disruption in Financial Transactions.

Your inoperative PAN will be a major roadblock in a wide range of financial transactions where quoting PAN is mandatory. These include:

• Banking Transactions:
  • Opening a new bank account.
  • Depositing cash exceeding ₹50,000 in a single day.
  • Making a time deposit (Fixed Deposit) exceeding ₹50,000.
• Investments:
  • Investing in mutual funds.
  • Buying or selling securities in the stock market. Your Demat account may be suspended.
• Property Transactions:
  • Buying or selling immovable property. In property transactions, if the seller’s PAN is inoperative, the buyer is required to deduct TDS at 20% instead of the usual 1%, as per Section 194IA.
• Other Transactions:
  • Purchase of a motor vehicle.
  • Applying for a credit or debit card.
  • Payment of life insurance premiums exceeding ₹50,000 in a financial year.

Immediate Consequences: Inoperative PAN.

• Your PAN becomes inoperative.
• You cannot file income tax returns or claim refunds.
• Refunds and processing of previous returns are put on hold.
• Higher TDS/TCS rates (usually 20%) applied to outgoing payments.
• Cannot use inoperative PAN for property sales, investments, or large deposits.

A Step-by-Step Guide to Linking Your PAN with Aadhaar.

If you haven’t linked your PAN with Aadhaar yet, it’s imperative to do so at the earliest. The process is straightforward and can be completed online through the Income Tax e-filing portal.

Step 1: Check Your PAN-Aadhaar Linking Status.

Before you proceed with the linking process, it’s a good practice to check if your PAN is already linked with your Aadhaar. Here’s how:

1. Visit the Income Tax e-filing portal.
2. On the homepage, click on “Link Aadhaar Status” under the “Quick Links” section.
3. Enter your PAN and Aadhaar number.
4. Click on “View Link Aadhaar Status.” The status will be displayed on the screen.

You can also check the status via SMS by sending a message in the format UIDPAN <12-digit Aadhaar number> <10-digit PAN number> to 567678 or 56161.

Step 2: Pay the Late Linking Fee (If Applicable).

If your PAN is not linked and you do not fall under the exempted or special extension category, you will need to pay the late linking fee of ₹1,000. Here’s how to do it:

1. On the Income Tax e-filing portal, click on “e-Pay Tax” under “Quick Links.”
2. Enter your PAN, confirm it, and provide your mobile number for OTP verification.
3. After OTP verification, you will be redirected to the e-Pay Tax page.
4. Under the “Income Tax” tab, select the Assessment Year as the current financial year and the “Type of Payment (Minor Head)” as “Other Receipts (500).
5. The applicable amount of ₹1,000 will be pre-filled.
6. Choose your preferred payment method (Net Banking, Debit Card, or Payment Gateway) and complete the payment.

Step 3: Link Your PAN and Aadhaar.

Once the payment is successfully processed, you can proceed with the linking:

1. Go to the “Link Aadhaar” option on the e-filing portal.
2. Enter your PAN and Aadhaar number.
3. Click on “Validate.”
4. Your payment details will be verified. Click “Continue.”
5. Enter your name as per Aadhaar and your mobile number.
6. You will receive an OTP on your registered mobile number. Enter the OTP and click “Validate.”
7. A confirmation message will be displayed, and your request for linking will be submitted.

It’s important to note that it may take a few days for the linking to be completed and for your PAN to become operative.

What If Your PAN is Already Inoperative?

Reactivation Process.

• Pay the ₹1,000 penalty (if applicable).
• Link PAN–Aadhaar by logging into the tax portal.
• Reactivation may take up to 30 days, longer during peak times.

Penalty and Charges Explained.

• Penalty for late linking: ₹1,000 except in select cases.
• Penalty for inoperative PAN during certain periods: Higher TDS/TCS, unless promptly linked due to recent relief circulars.

Best Practices for Tax Compliance.

• Check PAN–Aadhaar status annually.
• Remind employees and contractors to link and check status.
• Keep proof and confirmation emails for your records.
• File income tax returns only with an active PAN.
• Remediate inoperative PANs immediately.

Benefits of a Linked PAN with Adhaar.

The push for PAN-Aadhaar linking is part of a larger government strategy to create a more integrated and transparent financial system. The benefits of this move extend beyond just tax compliance.

For the Government and the Economy.

• Curbing Tax Evasion: Linking PAN with Aadhaar makes it extremely difficult for individuals to hide their income or hold multiple PAN cards.
• Streamlining Financial Services: A linked system allows for faster and more efficient delivery of financial services, including loans, insurance, and investments.
• Reducing Black Money: By tracking high-value transactions, the government can keep a check on the flow of black money in the economy.
• Targeted Subsidies: Linking Aadhaar to bank accounts and PAN ensures that government subsidies and benefits reach the intended beneficiaries.

For the Taxpayer.

• Simplified Tax Filing: A linked system can pre-fill a lot of your information in your ITR form, making the filing process easier and less prone to errors.
• Faster Processing of Refunds: With a verified and linked bank account, tax refunds can be processed and credited to your account much faster.
• Ease of E-Verification: Linking Aadhaar with your e-filing account allows you to e-verify your ITR using an Aadhaar OTP, which is a simple and convenient process.
• Building a Financial Profile: A linked PAN and Aadhaar help in building a comprehensive financial profile, which can be beneficial when applying for loans or other financial products.

Frequently Asked Questions (FAQs).

Q1: Who needs to link PAN with Aadhaar?

All PAN holders eligible for Aadhaar under tax law.

Q2: Is there any exemption?

Certain groups like Jammu & Kashmir residents or NRIs are generally exempt. Review the latest exemption list on the official tax portal.

Q3: What if I link after the penalty window?

You will need to pay the penalty. Transactions with inactive PAN may be penalized unless covered by the latest relief.

Q4: Can I file tax returns or get a refund with an inoperative PAN?

No. Only an active PAN allows return filing and refunds.

Q5: Where can I find updates?

Check the Income Tax Department’s official website and notification section for current updates.

Conclusion

The latest extension on PAN–Aadhaar linking and the relief from TDS penalties bring much-needed relief to taxpayers, businesses, and professionals. By staying proactive and compliant, you can avoid unnecessary hassles, penalties, and delays in financial transactions. Check your PAN–Aadhaar status today and follow the simple steps to stay compliant.

Disclaimer:

This article is intended for informational purposes only and is based on publicly available information as of July 31, 2025. The details and deadlines provided are subject to change by government authorities. Readers are advised to cross-check current rules on the official Income Tax Department website or consult a qualified tax professional for personalized advice. No liability is assumed for decisions made based on this article.

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C.K. Gupta

Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.