Inoperative PAN: Frozen Refund, No Interest, 20% TDS and the Fix

Your return for AY 2026-27 was processed with a refund, but the refund status shows it failed, and the portal shows a warning asking you to link your PAN with Aadhaar. Your bank also deducted TDS on fixed deposit interest at 20% instead of 10%. Both have one cause: the PAN is inoperative because it was never linked with Aadhaar.

The fix is to pay a ₹1,000 fee, link the two, and wait for the PAN to become operative again. What you can't get back is the refund interest for the months the PAN stayed inoperative, so the sooner you link, the less you lose.

Why the PAN became inoperative

Every person who has a PAN and can get an Aadhaar number had to intimate their Aadhaar to the department by 30 June 2023, unless exempt. PANs not linked by then became inoperative from 1 July 2023. CBDT set out the consequences in Circular No. 3 of 2023, dated 28 March 2023.

Some people are exempt from linking and their PANs are not affected, for example non-residents, people who are not Indian citizens, people aged 80 or more, and residents of certain states named in CBDT's notification. If you fall in one of these groups and your PAN still shows as inoperative, contact your Assessing Officer with proof of your status.

If your PAN was allotted using an Aadhaar enrolment ID rather than an Aadhaar number, check its status as well. Such PANs were given a separate deadline to intimate the final Aadhaar number.

What an inoperative PAN costs you

According to Circular 3/2023, while the PAN is inoperative:

Section 206AA applies the highest of the rate in the Act, the rate in force and 20%, so a payment that normally carries 10% TDS is deducted at 20%.

A worked example

Meera has a fixed deposit that pays ₹60,000 of interest in FY 2025-26, and she is owed a refund of ₹30,000 for AY 2026-27. Her PAN is inoperative.

The extra ₹6,000 of TDS is not lost. It shows against her PAN in Form 26AS and she claims it in her return, so it adds to her refund. But that refund too is paid only once the PAN is operative. Every month she delays costs her roughly ₹150 of interest on the ₹30,000 refund alone, before counting the extra TDS that is also stuck.

For payments made from 1 April 2026, TDS falls under the Income-tax Act, 2025. If your deductor applies a higher rate on a payment this year, ask them which provision and rate they have used, since the section numbers have changed.

How to make the PAN operative again

Step 1: pay the ₹1,000 fee

1. On incometax.gov.in, use Link Aadhaar under Quick Links, or log in and go to My Profile > Link Aadhaar.
2. Enter your PAN and Aadhaar number. If the fee isn't paid yet, the portal offers to take you to e-Pay Tax.
3. Confirm your PAN and enter the OTP sent to your mobile.
4. On e-Pay Tax, choose the Income Tax tile, the assessment year the portal suggests, and Other Receipts (500) as the type of payment. The ₹1,000 amount is pre-filled.
5. Pay through net banking or another available mode.

The portal's help page asks you to wait 4 to 5 working days after paying before you submit the link request, so the payment is reflected.

Step 2: submit the link request

1. Go back to Link Aadhaar (before or after login).
2. Enter your PAN, Aadhaar number, name as on Aadhaar and mobile number.
3. Enter the OTP and submit.

Your name, date of birth and gender should match on PAN and Aadhaar. If they don't, the request can fail, and you need to correct one of the two records first.

Step 3: wait for the PAN to become operative

Circular 3/2023 says the PAN becomes operative again within 30 days of intimating the Aadhaar number after paying the fee. Check progress with Link Aadhaar Status, available before and after login.

After the PAN is operative

1. Check the refund status. Go to e-File > Income Tax Returns > View Filed Returns and open the year. ITR processed but refund not received has a checklist for each status.
2. If the refund shows as failed, make sure your bank account is pre-validated and nominated for refund, then raise a request under Services > Refund Reissue. Our refund reissue guide has the screens, and bank pre-validation errors covers the account side.
3. Tell your bank and other deductors. Once the PAN is operative, ask them to deduct at the normal rate on future payments.
4. Claim the extra TDS in your return. TDS deducted at the higher rate is still credited to your PAN, so claim all of it.

Refunds and demands for AY 2026-27 and earlier are dealt with under the Income-tax Act, 1961. The steps on the portal are the same whatever year the refund belongs to.

If you look after refunds for parents or other family members, myutils.me shows each PAN's refund status and the bank account it was sent to after you sync. It is an independent app, and linking Aadhaar is something you do on the portal yourself.

FAQ

Can I file my ITR if my PAN is inoperative?

You can file, but a refund due on that return is not paid while the PAN is inoperative, and no interest accrues on it for that period.

Is the ₹1,000 a penalty?

It is a fee for intimating your Aadhaar after the deadline. You pay it through e-Pay Tax under Other Receipts (500) before submitting the link request.

How long after linking will my refund come?

The PAN becomes operative within 30 days of the link. The refund then depends on processing and on your bank account. If it already failed, it comes only after you raise a refund reissue request.

Will I get interest for the months my PAN was inoperative?

No. Circular 3/2023 says no interest is payable on the refund for the period the PAN remained inoperative.

My PAN was inoperative when my bank deducted 20% TDS. Can I get the extra back?

Yes, through your return. The full TDS shows against your PAN in Form 26AS, and the excess over your tax liability is refunded once the return is processed and the PAN is operative.

Sources

• How to link Aadhaar, e-Filing portal
• Link Aadhaar Status service, e-Filing portal
• CBDT Circular No. 3 of 2023, 28 March 2023
• Refund status user manual, e-Filing portal