On 21 July 2025, the Central Board of Direct Taxes (CBDT) issued Circular No. 9/2025, amending key provisions of Circular No. 03/2023—originally issued on 28 March 2023—which had set the consequences of a PAN becoming inoperative digitally by virtue of Rule 114AAA of the Income‑tax Rules, 1962. This update specifically addresses grievances raised by deductors and collectors over penal TDS/TCS assessments.
⚖️ Background: What Triggered this Change?
The introduction of Rule 114AAA and its implementation through Circular No. 03/2023 aimed to enforce Aadhaar–PAN linkage. The rule had mandated that a PAN without Aadhaar linkage becomes inoperative, triggering several consequences, such as:
Higher TDS/TCS — Tax deducted or collected at an elevated rate under Sections 206AA/206CC.
Withholding of refunds — No tax refunds processed until the PAN is reactivated.
No interest earned — Interest on refunds is not payable during the inoperative period.
These were effective from July 2023 onward.
However, Circular No. 03/2023 didn’t provide any grace period; even a brief inoperative PAN could lead to strict TDS/TCS application. This prompted numerous grievances, with deductors/collectors receiving notices for “short deduction/collection” and facing undue penalties.
🛠️ How Does Circular No. 9/2025 Help?
Circular No. 9/2025 introduces significant relaxations:
Grandfathering past transactions (April 2024 – July 2025):
Transactions where PAN was inoperative between 1 April 2024 and 31 July 2025 will not attract higher TDS/TCS provided the PAN is made operative via Aadhaar linkage by 30 September 2025.
Forward-looking relief (post-1 August 2025):
Transactions from 1 August 2025 onwards are exempt from higher rates if the PAN becomes operative within two months after the end of the month in which the payment or credit occurs.
In both scenarios, standard TDS/TCS rates (as per the applicable provisions under Chapter XVII‑B or XVII‑BB) will be valid.
👥 Who Benefits from This Circular?
Deductors and collectors who faced default notices due to inadvertent payments involving inoperative PANs.
Individual taxpayers who have promptly reactivated their PAN by linking it with Aadhaar.
Tax advisors and corporate tax teams who can streamline TDS/TCS compliances without the fear of retrospective penalties.
✅ What Should You Do Now?
If your PAN is still inoperative, link it with Aadhaar immediately.
For transactions from April 2024 to July 2025, ensure Aadhaar linkage by 30 September 2025 to avoid past TDS/TCS issues.
For payments made from August 2025 onward, ensure linkage within the relevant two‑month grace window.
Maintain documentation of Aadhaar–PAN linkage for each payment cycle.
Stay updated on further CBDT circulars—particularly the possible issuance of a Hindi version or other clarifications.
🚀 Final Thoughts
Circular No. 9/2025 represents a welcome pivot: from rigid TDS/TCS enforcement to a taxpayer-friendly, practical approach. It aligns operational realities with the digitization drive without burdening businesses unduly. By offering reasonable timeframes for PAN reactivation, the CBDT has mitigated undue hardship while still preserving the sanctity of rule compliance. Careful adherence to the stipulated timelines will ensure that deductors and taxpayers alike can navigate the system error-free.