TDS Demand for an Inoperative Seller PAN, Reversed on Appeal

This note explains a recurring problem in property purchases: a buyer deducts TDS correctly, but the seller's PAN status at the time of payment turns a routine deduction into a demand running into lakhs. The underlying order is a genuine appellate order; identifying details have been removed.

The situation

A buyer purchased land and, under Section 194-IA, deducted TDS at 1% on the sale consideration and deposited it, filing Form 26QB in the usual way.

The problem

When CPC-TDS processed the Form 26QB, it issued an intimation under Section 200A treating the buyer as a defaulter for short deduction, worth roughly ₹14.67 lakh, plus interest and a late-filing fee. The reason: the seller's PAN was "inoperative" on the payment date, because it was not linked to Aadhaar. An inoperative PAN triggers Section 206AA, which requires TDS at 20% instead of 1% — a twenty-fold jump the buyer had no way of knowing about from the sale documents alone.

The appeal

The buyer appealed to the CIT(A), who directed the assessing officer to verify whether the seller's PAN was in fact operative and linked to Aadhaar, with reference to CBDT Circular No. 9/2025 dated 21.07.2025.

The relief: what the circular actually does

Circular 9/2025 gives relief for a specific window: where a transaction was entered into between 1 April 2024 and 31 July 2025, and the deductee's PAN becomes operative (through Aadhaar linkage) on or before 30 September 2025, there is no liability on the deductor to deduct or collect tax at the higher rate under Section 206AA or 206CC. In effect, if the PAN is fixed within the window, the higher-rate demand falls away, even though the PAN was inoperative on the actual payment date.

The outcome

In this case, the sale was completed in December 2024 and the seller's PAN became operative on 27 January 2025, both within the relief window. The demand was accordingly revised:

Particulars	Amount
Original demand (short deduction, interest, late fee)	₹15,16,110
Relief granted under the circular	₹15,10,957
Balance payable	₹5,153

The residual amount was late-payment interest and a filing fee that the circular does not touch — the short-deduction demand itself, the dominant part of the bill, was fully reversed.

What buyers should do

Before paying a seller, check the seller's PAN status on the income tax e-filing portal. An inoperative PAN is a live risk, not a formality.
If TDS was deducted at 20% because of an inoperative PAN and the seller later linked Aadhaar, check whether the transaction and linkage dates fall inside a relief window under the applicable circular for that year.
If a Section 200A intimation raises a short-deduction demand, an appeal supported by the seller's PAN-Aadhaar linkage record and the relevant circular can reverse it.
Keep the sale deed, Form 26QB, the CPC intimation and proof of the seller's PAN status together — the appeal above succeeded because all of these were filed with the request.

Circular numbers, dates and relief windows change each year. This note describes one matter under the rules current at the time. Confirm the circular in force for your transaction date before relying on this relief, or talk to us about a specific case.

Need help with this? See our Tax Notice & Litigation Support or book a consultation. This article is general information, not advice for your specific situation.

Benfer Antony A B, Finance & Tax Consultant and founder of Growth Circle. This article is general information. Tax rules change, so confirm your position before you act.