Missed PAN-Aadhaar linking deadline? Pay higher TDS on dividend income

As per the CBDT notification dated March 28, 2023, all individuals should have mandatorily linked their PAN with Aadhaar before June 30, 2023. Failure to do so would result in the PAN becoming inoperative from July 1, 2023.

If your PAN becomes inoperative, there are several disadvantages, including the higher TDS (Tax Deducted at Source) on dividend income.

The TDS rates for shareholders are determined based on their residency status and classification, as per the rules outlined in the Act. Consequently, if your PAN is not linked, the company will deduct tax at source from dividend payments at rates specific to the type of shareholders, subject to fulfilling certain conditions. This may result in a higher deduction of tax from your dividend income.

Additionally, it is essential to have a valid Permanent Account Number (PAN) for the process. As per Section 139AA(2) provisions in conjunction with Rule 114AAA of the Act, shareholders must link their Aadhaar with their PAN within the specified time frames. This linking is mandatory to comply with the regulations.

Grasim Industries has sent an email to those who receive dividends from it, mentioning the tax deduction provisions. If a shareholder’s PAN is unavailable or invalid/inoperative in the company’s records, the tax will be deducted at a 20% rate per Section 206AA of the Act. 

Shareholders subject to TDS will have tax withheld at a rate of 10% on the dividend amount as per Section 194 of the Act unless they qualify for exemption under specific provisions mentioned in the Act. But, the  Individuals who receive dividend payments from the company and whose total dividend earnings remain below Rs 5,000 during the entire fiscal year will be exempted from TDS. They will not have any tax withheld on their dividend income.

As per the rules effective from July 1, 2023, if taxpayers fail to link their Aadhaar as required, their PAN will become inoperative, leading to the following consequences:

  • No refunds will be issued for transactions associated with such inoperative PANs.
  • If any refund is applicable, no interest will be paid for the period in which the PAN remains inoperative.
  • TDS and TCS (Tax Collected at Source) will be deducted/collected at a higher rate as specified in the Act for transactions involving the inoperative PAN.

To avoid these consequences, it’s essential for taxpayers to timely link their Aadhaar with their PAN as mandated by the authorities.

If an individual has missed the deadline to link their PAN with Aadhaar, they still have the option to link it even after the expiry of the deadline. However, they will need to pay the applicable penalty, as specified by the authorities.

Once the individual has successfully requested the linking of PAN with Aadhaar, their PAN will become operative again after a waiting period of 30 days from the date of intimation. For instance, if the individual applies for linking on July 20, the PAN will become operative on or before August 19.

During the period when the PAN remains inoperative, the consequences of not having a linked PAN will apply, including higher TDS on incomes and no income tax refunds. Individuals must comply with the linking requirement to avoid such consequences and ensure the proper functioning of their PAN for financial transactions and tax-related matters.

The income tax department has assured that it will consider cases where individuals have consented to link their PAN with their Aadhaar and have paid the necessary fees, even if the linking process has not been completed by the deadline of June 30. This means that the department will consider individuals who have made efforts to link their PAN with Aadhaar but encountered delays or technical issues. The authorities will review such cases and take appropriate actions to ensure that individuals are not unduly penalised for circumstances beyond their control.

For any clarifications/feedback on the topic, please contact the writer at samiksha.swayambhu@clear.in

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