Inoperative PAN explained: What Draft Income-tax Rules 2026 say on refunds, TDS

The newly released Draft Income-tax Rules, 2026, clearly explain the consequences of an inoperative PAN. From blocked tax refunds to higher TDS deductions, the draft rules lay out exactly what taxpayers can expect if their PAN becomes inoperative.

What makes a PAN inoperative?

A PAN can become inoperative if it hasn’t been properly verified or linked with Aadhaar, as required by income tax laws in India. In simple terms, if your PAN is not authenticated through Aadhaar linkage, it cannot be used for financial transactions or tax-related purposes.

What happens when PAN becomes inoperative?

Under Rule 162 of the Draft Income-tax Rules, 2026, if a person who has been allotted a PAN is required to intimate his Aadhaar number under section 262(6) but fails to do so, the PAN will become inoperative.

As per the Draft Income-tax Rules, 2026, a person whose permanent account number has become inoperative shall be liable for further consequences for the period commencing from the date of commencement of this rule till the date it becomes operative, namely:

• Refund of any amount of tax or part thereof, due under the provisions of the Act shall not be made.

• Interest shall not be payable on such refund for the period beginning with the date of commencement of this rule and ending with the date on which it becomes operative.

• Where tax is deductible or collectable at source under Chapter XIX-B in case of such person, such tax shall be deducted or collected, as the case may be, at a higher rate.

To put it simply, the consequences of an inoperative PAN

• No tax refunds

• Zero interest on refunds

• Higher TDS/TCS.

How to reactivate your PAN?

If your PAN has become inoperative, the Draft Rules provide a path to recovery. The draft rule says: "If a person who had been allotted a Permanent Account Number (PAN) and was required to intimate his Aadhaar number under section 262(6), but failed to do so, then his PAN being inoperative, he shall be liable for payment of fees in accordance with rule 158. Where the person referred to in sub-rule(1) has intimated his Aadhaar number under section 262(6), after payment of fees in accordance with rule 158 his PAN shall become operative within 30 days from the date of intimation of Aadhaar number. in accordance with provisions of section 397(2)."

• Pay the fee: Under Rule 158, you must pay a late fee of ₹1,000.
• Intimate Aadhaar: Submit your Aadhaar number in the prescribed format.
• Wait 30 days: Your PAN will become operative again within 30 days from the date of intimation.

What does Rule 158 say?

As per Rule 158 of the Draft Income-tax 2026, "Every person who, in accordance with the provisions of section 262(6)(a), is required to intimate his Aadhaar number to the prescribed authority in the prescribed form and manner, failed to do so by 30.06.2023, shall, at the time of subsequent intimation of his Aadhaar number to the prescribed authority, be liable to pay, by way of fee, an amount equal to ₹ 1000."

What does the Income-tax Act, 1961 say about inoperative PAN?

The idea of an “inoperative PAN” isn’t new. Even under the earlier Income-tax Act, 1961 framework, taxpayers were required to link their PAN with Aadhaar under section 139AA. If they failed to complete this linking by the prescribed deadline, their PAN would automatically become inoperative.