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The revenue department had said in April this year that if PANs are not linked with Aadhaar by May 31, they will become inactive, which will lead to higher tax deductions and refunds being withheld. Image for representation. | Photo credit: Getty Images/iStockphoto
Many employers are in the news over demand notices from the Income Tax (IT) department for under-deduction of tax on income of employees who have not adhered to the May 31 deadline to link their PAN and Aadhaar numbers, with some companies reporting tax demands even for workers earning below the taxable income limit.
The Revenue Department had said this April that PANs would become mandatory. Inactive if not linked to Aadhaar By May 31, tax deductions should be made at a higher rate, and refunds should be stopped. This follows a similar directive issued last year, which said these consequences of inactive non-Aadhaar linked PANs were to be applicable from July 1, 2023.
The department had issued around 75 crore PANs or Permanent Account Numbers by March 31, 2024. As of January this year, around 11.5 crore PANs were yet to be linked with Aadhaar.
“Although the language of the circular is clear that such higher rate is applicable only in cases where tax is deductible, tax officers are applying the higher rate while processing tax deduction returns, even in cases where salary income is below the prescribed limit,” said Anita Basrur, partner, Sudit K. Parekh & Co. LLP. Hindu.
“This is creating unnecessary problems for the companies as they are reporting cases below the threshold only for the purpose of issuing salary certificate (Form 16) to such employees,” he said.
Many companies are asking employees to link PAN after receiving demand notices, and are revising their tax deduction returns, but there is no clarity on the stand of tax authorities in such cases.
He said, “It has been observed that the tax authorities are not considering such cases and the demand still remains payable as the linking is after the extended time limit. Many complaints have also been filed in cases where the payment is below the prescribed limit, and thus there is no need to withhold tax and the question of higher rate does not apply.”
“Though it can be said that companies have not suffered any loss as they can recover the amount from the employees, it would be difficult to recover the tax in cases where the salary of the employees is below the threshold limit or in cases where the employees have left the organisation,” Ms Basrur stressed.
Questions asked to the Central Board of Direct Taxes on this issue were not answered till the time of writing the news.
Akhil Chandna, partner, Grant Thornton India, suggested: “For FY 2023-24, if the employee’s PAN and Aadhaar are not linked even after May, they should deposit the outstanding tax amount. After this, employees should also claim the TDS amount by filing or revising their tax returns for 2023-24, subject to PAN-Aadhaar linkage.”
Chartered accountant Suresh Surana said if employers have deducted tax at a rate lower than 20%, they may receive a notice for under-deduction, which will attract interest and penal consequences too.
He said, “Employers should verify that all employees have linked their PAN with Aadhaar to ensure accurate TDS (tax deduction at source) and avoid such notices. Employers will not be liable for under-deduction in cases where employees have linked their PAN and Aadhaar on or before May 31.” However, Mr Surana cautioned that linking PAN and Aadhaar later may not have any impact on these demand notices.
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