The Central Board of Direct Taxes (CBDT) has furnished relief to the assessees who obtained the tax demand notices for the reason that they deducted less TDS compared to the taxpayers whose PAN had become inoperative.
Multiple TDS deductors and collectors, TCS respectively, had obtained the income tax demand notices requesting them to deposit the short deduction in TDS/TCS.
The deductors or collectors had deducted TDS/TCS at the standard rate rather than the higher penal rate of TDS/TCS applicable to deductees/collectees whose PAN had become nonfunctioning because of non-linkage with Aadhaar.
Certain TDS deductors had received income tax notices due to the aforesaid issue. Under the report, the short deduction of TDS takes place as the deductor was unaware that the deductee’s PAN had become nonfunctioning and that, consequently, a higher penal TDS rate was appropriate.
The CBDT circular on April 23, 2024 cited that to redress the issues encountered via these deductors/collectors, the Board, in partial modification and in continuation of the circular no 3 of 2023, establishes that for the transactions entered into up to 31.03.2024 and in cases where the Permanent Account Number (PAN) becomes non-functioning (as a consequence of linkage with Aadhaar) on or before 31.05.2024, there will be no obligation on the deductor/collector to deduct/collect the tax u/s 206AA/206CC, as per the case, and the deduction/collection as instructed in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act, shall be applicable.
It directed that the rule asking for the deduction/collection of TDS/TCS at a higher rate shall not apply but the rule mandating deduction/collection at a normal rate as in normal cases where PAN is operative shall be applicable.
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In these matters, as quoted in the circular dated April 23, 2024, no liability will be there on the deductor/collector to deduct/collect the tax u/s 206AA/206CC at double the rate as of PAN being nonfunctioning because of nonlinkage of PAN with Aadhaar and therefore such deductors will not be needed to pay the difference.
Those deductors/collectors of TDS/TCS shall have the relief where these conditions are satisfied:
- The deductee’s/collectee’s PAN must become operative (as a result of linkage with Aadhaar) on or before May 31, 2024. Read Circular
- Transactions (which are subject to TDS or TCS) were entered into up to March 31, 2024, and
The same is mentioned that when both the stated conditions above are fulfilled then only no obligation on the TDS deductor or TCS collector is there. But what takes place in those cases where the person has filed the penal interest earlier because of the short deduction of TDS/TCS? It is feasible that the penal interest paid earlier shall not get refunded back.
For instance: a person purchased a property on 15th February 2024 from a seller who had an in-operative PAN. without learning the fact, that he deducted 1% on the same date but failed to file the TDS return or deposit the TDS. post this fresh circular on 23rd April 2024, it directed that when the same person furnished the TDS return and deposits the TDS for the same transactions which arrived on 15th February 2024, he shall not obtain a tax demand notice towards not deducting the TDS on a more elevated rate, however, get penalized for losing to furnish the TDS return along with the interest u/s 201 for late deposit of TDS.
Only for deduction up to 31st March 2024, the same provision is appropriate where PAN was inactive and indeed an amended TDS return could get furnished once the PAN stops working.
Why Does CBDT Provide Relief to Assessee for Short Deduction of TDS/TCS?
Under the CBDT circular, distinct grievances have been obtained from the assessees that they have received notices from income tax for ‘short-deduction/collection of TDS/TCS while carrying out the transactions where the PANs of the deductees/collectees were nonfunctioning.
In these matters, since the deduction/collection has not been made at a higher rate, the department raises the demands against the deductors/collectors during TDS/TCS statements processing u/s 200A or u/s 206CB of the Act as per the case, the circular stated.
Certain individuals have obtained notices of income tax because of short TDS deductions, particularly in property purchasing matters and some in rent cases.
