TDS-TRACES Challenges After Aadhaar-PAN Linking: Issues and Solutions

TDS-TRACES Issues Following Aadhaar-PAN Linking

Taxpayers across India are currently experiencing significant difficulties with the processing of Tax Deducted at Source (TDS) returns through the TDS-TRACES portal. This situation follows the requirement to link Aadhaar with PAN, which taxpayers have complied with, alongside paying the mandatory penalty of ₹1,000 as stated in the Income Tax Act. Nonetheless, discrepancies in the TDS returns remain unresolved.

Key Issues

Unjustified TDS Demands:
The automated systems utilized by the Income Tax portal are generating excessive TDS demands. Tax deductors are being instructed to pay the difference between the standard TDS rate of 20% and the actual tax rate that was already deducted and deposited. This issue persists even after regularization, resulting in unnecessary financial and procedural burdens for both taxpayers and tax deductors.
Litigation and Mental Stress:
These unreasonable demands have led to unnecessary litigation, causing considerable mental and financial distress for compliant taxpayers.
Inadequate Grievance Redressal:
Taxpayers continue to experience unresolved issues despite using available grievance redressal mechanisms. The inefficacy of these resolutions diminishes trust in the tax authorities and the overall government.

Immediate Recommendations

Provide Clear Guidelines:
It is essential to establish clear instructions to address and resolve discrepancies that arise from automated TDS processing.
Ensure Human Oversight:
A review system should be implemented to prevent automated processes from generating unwarranted demands without proper human validation.
Streamline Grievance Mechanisms:
The grievance redressal process should be enhanced and expedited to ensure timely and effective resolution of taxpayer concerns.

CBDT Relief and Circulars

The Central Board of Direct Taxes (CBDT) issued Circular No. 6/2024 on April 23, 2024, with further clarifications provided in August 2024. These circulars afford relief for transactions conducted by March 31, 2024. For individuals who linked their PAN with Aadhaar by May 31, 2024, there will be no increased TDS/TCS liability for these transactions.

Deadline Extensions and Applicability

The deadline for most PAN holders to link their Aadhaar was set for May 31, 2024, alongside a ₹1,000 penalty for non-compliance. However, those who obtained their PAN based on Aadhaar enrolment ID prior to October 1, 2024, will have the deadline extended to December 31, 2025.

Addressing these issues promptly is vital for easing the burdens faced by taxpayers and tax deductors, minimizing litigation, and restoring confidence in the tax system. Cultivating a compliance-friendly environment for honest taxpayers while promoting a just taxation framework is imperative.