Why is higher TDS deducted when PAN and Aadhaar are not linked, or for non-filers?

The higher rates

The higher rate also stops you giving a Form 15G or 15H. For salary, TDS is at the average rate or 20%, whichever is higher.

When is a PAN inoperative?

A PAN allotted on or before 1 July 2017, held by a person who must link it, becomes inoperative if it is not linked to Aadhaar. Exempt from linking are, among others, non-residents, people aged 80 or more, people who are not citizens of India, and residents of Assam, Meghalaya and Jammu and Kashmir.

While a PAN is inoperative:

• TDS and TCS are at the higher rates;
• refunds are not paid, and no interest accrues on them for that period; and
• the PAN cannot be used for many financial transactions.

Making it operative again

1. Pay the fee of ₹1,000 through e-Pay Tax on the portal.
2. Submit the Link Aadhaar request; check that name, date of birth and gender match in both records.
3. The PAN becomes operative, usually within 30 days, and normal TDS and TCS rates apply from then.

If higher TDS was already deducted

The extra TDS is not lost: it is credited to your PAN and you claim it in your return, with the excess refunded once the PAN is operative. Deductors who deducted at the normal rate where the PAN was inoperative may face a demand for the difference; CBDT has given relief in some cases where the PAN was linked within the time allowed. If you are a deductor, check PAN status on TRACES before each payment.