Your PAN is showing inoperative and TDS is being cut at 20%

An inoperative PAN is not a cancelled PAN. It still belongs to you, but for the period it is inoperative the law treats it almost as if a valid PAN were not in place. The trigger is the PAN-Aadhaar linking rule (Rule 114AAA): for those who were required to link and didn't, the PAN was made inoperative, and while it stays that way the consequences bite.

The consequence that hurts most is the deduction rate. Where a valid, operative PAN is not effective, tax is deducted at the higher rate — under Section 206AA that is 20%, or the rate otherwise in force, whichever is higher. So interest the bank would have deducted at one rate, or a buyer who would have deducted on a property sale at the certificate rate, instead deducts at 20% (and on some income the rate can be higher still). On top of that, refunds due to you can be withheld and interest on those refunds can stop running while the PAN is inoperative.

For an NRI the sting is that you often weren't supposed to be caught by the linking rule at all. The 20% is a side effect of the records showing you as a resident, not a penalty you actually earned.

Non-residents are among the categories generally exempt from the mandatory PAN-Aadhaar linking requirement (the exemptions recognised under Section 139AA and the notifications issued under it). An NRI who genuinely doesn't hold Aadhaar, and isn't required to, should not have been forced to link.

The problem is that the exemption is not applied automatically just because you live abroad. The department's system keys off the residential status recorded against your PAN. If you obtained your PAN years ago as a resident — most NRIs did — and never updated the status after moving abroad, the records still say 'resident'. To the system you look like a resident who failed to link, so it flags the PAN inoperative.

So the real issue is rarely Aadhaar at all. It is that your residential status on record is stale. Correcting that status (and, where needed, having the jurisdictional assessing officer note your non-resident, Aadhaar-exempt position) is what gets the PAN back to operative — not scrambling to link an Aadhaar you may not even have.

There are two routes, depending on why the PAN went inoperative, and they are not mutually exclusive.

If the cleanest fix is to record you correctly as a non-resident, the path runs through updating your residential status and informing your jurisdictional assessing officer (the AO who holds your PAN), usually with proof of your NRI status — passport, visa or residence permit, and dates abroad. Once the records reflect a non-resident who falls within the Aadhaar-linking exemption, the basis for treating the PAN as inoperative falls away.

If instead you do hold Aadhaar and were in fact required to link, the route is to complete the linking through the income-tax portal so the PAN is reactivated. Reactivation is not always instant — it can take a short processing window after the linking or the status correction is accepted — so it is worth starting before the next big deduction rather than after.

Because the exact steps and the documents the AO wants can vary case to case, this is the kind of thing the existing /pan-services page walks through in more detail, and where a CA can take it off your hands end to end. The aim is the same either way: a PAN that reads operative, so deductors stop applying the higher rate.

Making the PAN operative stops the bleeding going forward, but it does not by itself give back the tax already taken at 20%. That comes back through your income tax return.

The higher deduction was tax collected in advance, not your final liability. When you file your return for the year, the full amount deducted — visible in your Form 26AS and Annual Information Statement (AIS) — is set against the tax you actually owe. As a non-resident you also claim the lower rate your country's tax treaty allows on income like interest (Section 90), which is usually far below 20%. The gap between what was deducted and what you genuinely owe is refunded once the return is processed.

The sequence matters. Get the PAN operative first, so refunds are not held back on account of the inoperative flag; then file the return claiming the treaty rate and the credit for the deducted tax. Done in that order, both problems — the ongoing over-deduction and the money already taken — are resolved on the same set of steps.

Sanjay has lived in Dubai for six years and holds an NRO fixed deposit in India. This year his bank emailed to say his PAN is inoperative and it must deduct at 20%. On ₹6,00,000 of interest, that is ₹1,20,000 withheld — well above what he should be paying.

The cause turns out to be his records: he took his PAN as a college student in India and never updated the status after moving, so the department still shows him resident, and the system flagged the PAN for non-linking even though, as an NRI without Aadhaar, he was within the exemption. The first job is to update his residential status to non-resident with the jurisdictional AO, with his passport and UAE residence proof, and get the PAN back to operative.

With that done, his return claims the India-UAE treaty rate on the interest — far below 20% — and sets the ₹1,20,000 already deducted against the much smaller liability that results. The bulk of that withholding comes back as a refund, and because the PAN now reads operative, the refund is not held up by the inoperative flag. From the next interest credit, the bank stops applying the 20% rate.