Salary Tax -TDS for Inoperative PAN

This query is : Resolved

Bhai (Querist)
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12 March 2024 Dear Sirs,

While checking few PAN of our employees, some were inoperative.

How Is it possible for checking all employee PAN.

Since we have calculated salary tds on regular basis, what will happen if we file the returns based on regular working without knowing inoperative status.

Whether returns will be default and we will receive notice for lower deduction of TDS.

Kindly advice.

Thanks.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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11 July 2024 When dealing with PANs that are marked as "inoperative," it's crucial to understand the implications for TDS (Tax Deducted at Source) compliance and filing returns. Here’s a detailed explanation:

### Understanding Inoperative PANs

1. **What is an Inoperative PAN?**
- An "inoperative" PAN typically means that the PAN holder has not used the PAN for any financial transactions or has not linked it with their Aadhaar card within the stipulated timeline set by the Income Tax Department (ITD).

2. **Implications for TDS:**
- If an employee's PAN is marked as inoperative, the TDS provisions still apply. However, if the PAN is inoperative, the employee may not receive credit for TDS deducted when they file their income tax returns. This can lead to complications for the employee in claiming the TDS credit.

3. **Responsibility of the Employer:**
- As an employer, it's essential to verify the status of PANs periodically, especially before filing TDS returns.
- If a PAN is found to be inoperative, efforts should be made to update or rectify the PAN details with the employee.

### Steps to Handle Inoperative PANs:

1. **Verification Process:**
- Use the Income Tax Department's online portal or the PAN verification service provided by NSDL or UTIITSL to check the status of PANs.
- Input the PAN details and verify whether it is active or inoperative.

2. **Filing TDS Returns:**
- When filing TDS returns, ensure that PAN details are correctly entered for all employees.
- For inoperative PANs, consider withholding further payments until the employee provides a valid and operative PAN.

3. **Consequences of Non-Compliance:**
- Failure to deduct TDS or to report it correctly due to inoperative PANs can lead to penalties and interest liabilities for the employer.
- The employee may face difficulties in claiming tax credits for the TDS amount deducted if their PAN is not updated.

### Practical Advice:

- **Regular Verification:** Schedule periodic checks of PAN statuses to ensure compliance.
- **Communication:** Inform employees promptly if their PAN is found to be inoperative and request them to update it.
- **Documentation:** Maintain records of PAN verification and communications with employees regarding PAN issues.

### Conclusion:

Handling inoperative PANs requires proactive measures to ensure compliance with TDS provisions. It's advisable to work closely with a qualified tax advisor or accountant to manage these issues effectively, thereby avoiding potential penalties and ensuring smooth tax filing processes for both the employer and employees.