Income Tax Dept starts Intimation of Justification Reports from TRACES Portal w.r.t. short deduction of TDS in PAN-Aadhaar Linking Higher Rate

The Income Tax Department has started intimation of justification reports with respect to Tax Deducted at Source (TDS) short deduction at higher rate in light of the PAN-Aadhar linking status circular.

The Central Board of Direct Taxes (CBDT) circular 9/2022 dated 30th March 2022 stated the following, while numbering the setbacks for non-linking of PAN with Aadhaar: – “Further, Rule 114AAA of the Income-tax Rules provides that if a PAN of a person has become inoperative, he will not be able to furnish, intimate or quote his PAN and shall be liable to all the consequences under the Act for such failure.

This will have a number of implications such as:-

(i) The person shall not be able to file return using the inoperative PAN

(ii) Pending returns will not be processed,

(iii) Pending refunds cannot be issued to inoperative PANs,

(iv) Pending proceedings as in the case of defective returns cannot be completed once the PAN is inoperative; and (v) Tax will be required to be deducted at a higher rate as PAN becomes inoperative”

In continuation with the above circular, the department has released the following circular 03/2023 dated 28th March, 2023: – Consequent to the notification substituting rule 114AAA of the Income-tax Rules, 1962 (the Rules) vide notification no. 15 of 2023 dated 28th March, 2023, it is hereby clarified that a person who has failed to intimate the Aadhaar number in accordance with section 139AA of the Income-tax Act, 1961 (the Act) read with rule 114AAA shall face the following consequences as a result Of his PAN becoming inoperative:

(i) refund of any amount of tax or part thereof, due under the provisions of the Act shall not be made to him;

(ii) interest shall not be payable to him on such refund for the period, beginning with the date specified under sub-rule (4) of rule 114AAA and ending with the date on which it becomes operative;

(iii) where tax is deductible under Chapter XVII-B in case of such person, such tax shall be deducted at higher rate, in accordance with the provisions of section 206AA; (iv) where tax is collectible at source under Chapter XVII-BB in case of such person, such tax shall be collected at a higher rate, in accordance with the provisions of section 206CC.

Now, the Income Tax Department has started issuing justification reports, stating the short deduction caused by PAN errors such as non-PAN-Aadhaar linking. It is mandatory for the deductee to furnish his PAN to the deductor to enable him to deduct tax at source. It is mandatory for the deductee to furnish his PAN to the deductor to enable him to deduct tax at source. As per Section 206AA, if the recipient fails to furnish his PAN to the deductor then tax shall be deducted at the higher of the following rates:

(a) At the rate specified in the relevant provision

(b) At the rate or rates in force

(c) At the rate of 20%

However, where tax is required to be deducted by an e-commerce operator under section 194- O or by a buyer under section 194Q and the e-commerce participant or the seller has not furnished his PAN, the rate shall be taken 5% instead of 20% for point (c).

As per Section 206AA, if the recipient fails to furnish his PAN to the deductor then  tax shall be deducted at the higher of the following rates: (a) At the rate specified in the relevant provision (b) At the rate or rates in force (c) At the rate of 20%.

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