Circular No. 3/2023

Consequences of PAN becoming inoperative as per the newly substituted rule 114AAA

What this is

Circular No. 3/2023 was issued by the Central Board of Direct Taxes on 28 March 2023. Its subject is Consequences of PAN becoming inoperative as per the newly substituted rule 114AAA.

What it does

Sets out what happens once a PAN goes inoperative for failure to intimate the Aadhaar number under section 139AA read with rule 114AAA. Four consequences follow: no refund of tax is made; no interest is payable on that refund for the period from the date specified in rule 114AAA(4) until the PAN becomes operative; tax deductible under Chapter XVII-B is deducted at the higher rate under section 206AA; and tax collectible under Chapter XVII-BB is collected at the higher rate under section 206CC. These take effect from 1 July 2023 and continue until the PAN becomes operative. It supersedes Circular No. 7/2022 dated 30 March 2022.

Why it was issued

Rule 114AAA was substituted by notification no. 15 of 2023 dated 28 March 2023, and the Board issued this to state the consequences of an inoperative PAN under the newly substituted rule.

Who it reaches

PAN holders who have not intimated their Aadhaar number
Deductors and collectors dealing with such persons, who must apply the higher rate
Assessees with refunds pending whose PAN has gone inoperative
Persons exempted under section 139AA(3), who are outside these consequences

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.139AA	s.262
s.206AA	s.397
s.206CC	s.397

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it.

F. No. 370142/14/2022-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
*****
Circular No. 03 of 2023
New Delhi, Dated the 28th March, 2023
Sub.: Consequences of PAN becoming inoperative as per the newly substituted rule 114AAA - reg.

Consequent to the notification substituting rule 114AAA of the Income-tax Rules, 1962 (the Rules) vide notification no. 15 of 2023 dated 28th March, 2023, it is hereby clarified that a person who has failed to intimate the Aadhaar number in accordance with section 139AA of the Income-tax Act, 1961 (the Act) read with rule 114AAA shall face the following consequences as a result of his PAN becoming inoperative:

(i) refund of any amount of tax or part thereof, due under the provisions of the Act shall not be made to him;

(ii) interest shall not be payable to him on such refund for the period, beginning with the date specified under sub-rule (4) of rule 114AAA and ending with the date on which it becomes operative;

(iii) where tax is deductible under Chapter XVII-B in case of such person, such tax shall be deducted at higher rate, in accordance with the provisions of section 206AA;

(iv) where tax is collectible at source under Chapter XVII-BB in case of such person, such tax shall be collected at higher rate, in accordance with the provisions of section 206CC.

2. These consequences shall take effect from 1st July, 2023 and continue till the PAN becomes operative. A fee of one thousand rupees will continue to apply to make the PAN operative by intimating the Aadhaar number.

3. The consequences of PAN becoming inoperative shall not be applicable to those persons who have been provided exemption from intimating Aadhaar number under the provisions of sub-section (3) of section 139AA of the Act.

4. This is in supersession of the Circular No. 07 of 2022 of CBDT dated 30th March, 2022.

5. Hindi version to follow.

P. Amruth Vavarshini
Under Secretary (TPL-IV), CBDT

Copy to:
1. PS to FM/ OSD to FM/ PS to MoS(F)/ PS to MoS(F)
2. OSD to Secretary (Revenue)
3. Chairman, CBDT & All Members, CBDT
4. All Pro DOs IT/ Pro CCs IT
5. All Joint Secretaries/ CsIT/ Directors/ Deputy Secretaries/ Under Secretaries of CBDT
6. The C&AO of India
7. The JS & Legal Adviser, Ministry of Law & Justice, New Delhi
8. PCIT (M&TP), Official Spokesperson of CBDT
9. Web manager, ADO (S)-4, O/O Pro DO/IT (Systems) for uploading on official website.
10. JCIT (Database Cell) for uploading on www.irsofficersonline.gov.in

What to watch

The fee of one thousand rupees to make the PAN operative continues to apply.
Persons exempted from intimating Aadhaar under section 139AA(3) do not face these consequences.
The refund is not forfeited but held; the interest for the inoperative period is lost.
Circular No. 6/2024 later modified this in part for deductors and collectors on transactions up to 31 March 2024 where the PAN became operative by 31 May 2024.

Where you meet it

You meet it when a refund shown as determined in an intimation under section 143(1) does not issue, or when CPC-TDS raises a short-deduction demand because the deductee's PAN is flagged inoperative.

What it names

Rules it names. Rule 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. 03/2023, Circular No. 07/2022

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 25/2025 [F. No. 370142/1/2025-TPL] / GSR 217(E) — Ministry of Finance 3 April 2025
Notification No. 26/2025 [F. No. 370142/1/2025-TPL] / SO 1605(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 April 2025
Circular No. 7/2022 — Clarification with respect to relaxation of provisions of rule 114AAA of income tax rules 1962 prescribing the manner of 30 March 2022
Notification No. 113/2021 [F. No. 370142/35/2020-TPL-Part 1] / SO 3814(E) — Ministry of Finance 17 September 2021
Notification No. 20/2021 [F. No. 370142/35/2020-TPL] / SO 1432(E) — Ministry of Finance 31 March 2021
Notification No. 11/2020 [F.No. 370149/166/2019-TPL] / GSR 112(E) — Ministry of Finance 13 February 2020

← Circular No. 4/2023 · Circular No. 2/2023 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.