Clarification with respect to relaxation of provisions of rule 114AAA of income tax rules 1962 prescribing the manner of making permanent account number PAN inoperative
Circular No. 7/2022 was issued by the Central Board of Direct Taxes on 30 March 2022. Its subject is Clarification with respect to relaxation of provisions of rule 114AAA of income tax rules 1962 prescribing the manner of making permanent account number PAN inoperative.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Softens the landing for taxpayers who had not linked Aadhaar with PAN by the notified date of 31 March 2022. Rule 114AAA(2) treats an inoperative PAN as one that has not been furnished, quoted or intimated, with all the consequences that follow, and the circular states that this sub-rule takes effect only from 1 April 2023. The period from 1 April 2022 to 31 March 2023 is declared to be a period in which the sub-rule will not have the negative consequences described, which the circular lists as inability to file a return on the PAN, non-processing of pending returns, non-issue of pending refunds, inability to complete pending proceedings such as on defective returns, and deduction of tax at a higher rate. The taxpayer nevertheless remains liable to the fee under Rule 114(5A), section 234H providing for a fee not exceeding one thousand rupees on late intimation of Aadhaar.
Section 139AA was inserted to de-duplicate the PAN database after instances came to notice of multiple PANs allotted to one person and one PAN to more than one person, and the Board acted so that section 234H and Rule 114AAA would apply smoothly.
F.No.370142/14/2022-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
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Circular No.7 of 2022
New Delhi, Dated the 30th of March, 2022
Sub.: Clarification with respect to relaxation of provisions of rule 114AAA of Income-tax Rules, 1962 prescribing the manner of making Permanent Account Number (PAN) inoperative - reg.Instances had come to the notice of the Income-tax Department that multiple permanent account numbers (PANs) have been allotted to one person or one PAN has been allotted to more than one person. In order to have a robust way of de-duplication of PAN data base, Finance Act, 2017 with effect from 1st April, 2017, inserted section 139AA in the Income-tax Act, 1961 (the Act) making it mandatory for a taxpayer who is eligible to obtain Aadhaar, to quote his Aadhaar in the application form for PAN and return of income.
2. Sub-section (2) of section 139AA of the Act makes it mandatory for every person who has been allotted a PAN as on 1st July, 2017 to intimate his Aadhaar Number so that the Aadhaar and PAN can be linked. This is required to be done on or before a notified date, failing which the PAN shall become inoperative.
3. Accordingly, in case of failure to intimate the Aadhaar Number by the last extended notified date i.e. 31.03.2022, the PAN allotted to the person shall be made inoperative in accordance with the provisions of the Act. Further, the Finance Act, 2021 inserted a new section 234H in the Act to complete the process of PAN-Aadhaar linking for identifying bogus PANs. This section provides that where a person who is required to intimate his Aadhaar under subsection (2) of section 139AA fails to do so on or before a notified date, he shall be liable to pay a fee not exceeding a sum of one thousand rupees, as may be prescribed, at the time of making intimation under sub-section (2) of section 139AA after the said date.
4. Further, rule 114AAA of the Income-tax Rules provides that if PAN of a person has become inoperative, he will not be able to furnish, intimate or quote his PAN and shall be liable to all the consequences under the Act for such failure. This will have a number of implications such as:-
(i) The person shall not be able to file return using the inoperative PAN
(ii) Pending returns will not be processed
(iii) Pending refunds cannot be issued to inoperative PANs
(iv) Pending proceedings as in the case of defective returns cannot be completed once the PAN is inoperative
(v) Tax will be required to be deducted at a higher rate as PAN becomes inoperative4.1 In addition to the above, the tax payer might face difficulty at various other fora like banks and other financial portals, as PAN is one of the important KYC criterion for all kinds of financial transactions.
5. Hence, in order to have smooth application of section 234H and existing rule 114AAA, it is clarified that the impact of sub-rule (2) of rule 114AAA i.e. where a person whose permanent account number has become inoperative under sub-rule (1), is required to furnish, intimate or quote his permanent account number under the Act, it shall be deemed that he has not furnished, intimated or quoted the permanent account number, as the case may be, in accordance with the provisions of the Act, and he shall be liable for all the consequences under the Act for not furnishing, intimating or quoting the permanent account number, shall come into effect from 1st April, 2023 and the period beginning from 1st April, 2022 and ending with 31st March, 2023, shall be the period during which the said sub-rule shall not have its negative consequences of the nature referred to in the said sub-rule or specified in paras 4 and 4.1 above. However, the tax payer shall be liable to pay a fee in accordance with sub-rule (5A) of rule 114.
6. Hindi version to follow.
Shefali Singh
Under Secretary (TPL-IV), CBDT
In a short-deduction notice raised on a deductee's inoperative PAN, or where a refund or a pending return has been held up because a PAN was not linked.
Rules it names. Rule 114, 114AAA of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
It mentions. Circular No. 7/2022
Source: the Income Tax Department’s own published text — its page for this instrument.
