Relief for TDS Deductors: New CBDT Circular 9/2025 dated 21-07-2025

The new CBDT Circular 9/2025 dated 21-07-2025 has been issued and it has provided much-awaited relief to taxpayers who have been facing demands for short deduction of TDS due to inoperative PAN cards of their deductees.

Background of the Issue

The issue started with with Circular No. 03/2023  dated 28-03-2023. This circular made it mandatory from 01-07-2023 to deduct TDS at higher rates under sections 206AA and 206CC where the payments are made to such persons whose PAN cards were inoperative (not linked with Aadhaar). Under these provisions, PANs not linked to Aadhaar are treated as inoperative and requires higher TDS/TCS rate of 20%.

Since generally the deductors don’t follow the practice of checking the operative status of the PAN card of the payees, after processing of their TDS returns, CPC generated huge demands of short deduction against these inoperative PANs. This has created a unnecessary burden on the business owners to check and get the PAN card of the payee linked with Aadhar which is primarily the responsibility of payee.

Relief Measures notified in Circular 06/2024 dated 23-04-2024

Earlier on the same issue CBDT has issued Circular No. 6/2024 dated 23-04-2024, which provided relief for transactions carried out up to March 31, 2024, if the PAN was made operative by May 31, 2024. In this circular where the deductees whose PAN were linked to Aadhar by 31-05-2024 are covered in the relief measure.

However, this relief was limited in scope and time, leading to continued grievances from the business community for transactions beyond March 2024.

What the provisions contained in this new CBDT Circular 9/2025 ?

This new circular partially modifies the earlier Circular No. 03/2023 and extends the relief provided in Circular No. 06/2024. It takes into consideration the ongoing problems of taxpayers who continued to receive notices for short deduction even after the earlier relief measures.

The new circular provides the following expanded relief:

No Liability for Higher TDS in These Cases:

Case 1: For payments made between April 1, 2024, and July 31, 2025

• If the recipient’s PAN becomes operative (linked with Aadhaar) by September 30, 2025
• No liability to deduct higher TDS under sections 206AA/206CC

Case 2: For payments made on or after August 1, 2025

• If the recipient’s PAN becomes operative within two months from the end of the month in which payment is made
• No liability for higher TDS rates

Timeline of Relief Measures

For better understanding of the timelines of various provisions covered in this circular, below is the summary thereof.

• March 28, 2023: CBDT Circular No. 03/2023 – Made higher TDS rates mandatory for inoperative PANs from July 1, 2023
• April 23, 2024: CBDT Circular No. 06/2024 – Provided relief for transactions up to March 31, 2024, if PAN became operative by May 31, 2024
• July 2, 2025: CBDT Circular 9/2025 – Extended relief with new timelines and conditions

This shows the government’s continued effort to balance tax compliance with practical business needs.

What is the Immediate Relief provided in this CBDT Circular 9/2025?

• Businesses will not face demands for short deduction if the above conditions are met
• Existing notices for short deduction may be reconsidered based on these relaxations
• Reduced compliance burden for verifying PAN status at the time of payment

What are the action items for the Business Owners / Accountants

For Transactions from 01-04-2024 to 31-07-2025

If you have made payments between 01-04-2024 and 31-07-2025 where you deducted TDS at normal rates but the recipient’s PAN was inoperative, and the CPC has raised demands on you for short deduction of TDS, you can file the rectification request with CPC to rectify this demand and this way your demand will be made NIL by the government. Please note that for this the PAN of the deductee should have become operative by 30-09-2025.

So, for this you need to do rigorous follow up with your deductees to make their PANs operative by linking them with Aadhar upto 30-09-2025.

For Transactions from 01-08-2025 onwards

W.e.f. 01-08-2025 onwards you have a two-month window from the payment month for the recipient to make their PAN operative. This means that you can get the PAN linked with Aadhar within 2 months from the month of making the payment to avoid the demand of short deduction from CPC. In this case also, you need to apply for rectification if your TDS return gets processed with demand in the mean time.

Immediate Actions points for the Business owners and Accountants

1. Review Existing Demands: Check all pending TDS demands and notices received for short deduction. Many of these may now be covered under the new relief provisions.
2. Monitor TDS Return Processing: Pay close attention to TDS return processing intimations (under sections 200A and 206CB). Any demands raised for short deduction due to inoperative PAN should be immediately reviewed against the new circular provisions. Set up a systematic process to track and respond to such intimations promptly.
3. Create Vendor Communication Process: Since most small business owners don’t routinely check PAN linking status before payments, establish a proactive communication system:
   • Send notifications to all vendors/service providers about PAN-Aadhaar linking requirements
   • Include PAN linking clauses in vendor agreements
   • Request vendors to confirm their PAN-Aadhaar linking status in writing

Scope for improvement in Business Processes of the deductors

1. Establish PAN Verification Process: Before making payments, especially large ones, verify the PAN-Aadhaar linking status using the Income Tax Department’s online facility available at the e-filing portal under “Services > Verify Your PAN.”
2. Maintain Comprehensive Records: Document the following for each transaction:
   • Date of payment/credit
   • PAN verification status at the time of payment
   • Evidence of PAN becoming operative (if applicable)
   • Communication with payees regarding PAN linking
3. Set Up Alert Systems: Create reminders for the key dates:
   • September 30, 2025 (for payments made between April 1, 2024, and July 31, 2025)
   • Two-month deadline for payments made after August 1, 2025

Suggestions to the CBDT

Current Limitation: The Income Tax Department’s current online facilities allow checking whether a PAN is linked with Aadhaar but do not display the exact date when the linking was completed.

Our Suggestion to the Government: The department should consider introducing a facility to check the specific date of PAN-Aadhaar linkage. This would help deductors:

• Determine eligibility under various relief circulars
• Maintain better compliance records
• Reduce disputes and clarification requests

Until such a facility is available, deductors should:

• Request payees to provide written confirmation of their PAN linking date
• Maintain copies of any linking confirmation received from the tax department
• Document all verification attempts for audit purposes

To Sum Up

CBDT Circular 9/2025 represents a significant step forward in addressing the practical challenges faced by businesses due to inoperative PAN issues. This is the third circular in the series, showing the government’s continued commitment to finding balanced solutions that maintain tax compliance while reducing unnecessary compliance burden.

This article is compiled for educational and informational purposes and should not be considered as a professional advice. The author is a Practicing Chartered Accountant and he can be reached at rajendra@karnanica.com