Panchayat rules don't apply to Union territories since they're not full States.

Article 243L specifically extends Part IX's Panchayat provisions to Union territories, just replacing 'Governor' with 'Administrator' and adapting Legislature references.

The President's power under the proviso is unlimited and can rewrite the whole Part however he likes.

The President can only specify exceptions and modifications through a public notification for applying the existing provisions to a Union territory or part of it—not create entirely new rules unrelated to Part IX.

The Constitution of India

Article 243L

Application to Union territories

The provisions of this Part shall apply to the Union territories and shall, in their application to a Union territory, have effect as if the references to the Governor of a State were references to the Administrator of the Union territory appointed under article 239 and references to the Legislature or the Legislative Assembly of a State were references, in relation to a Union territory having a Legislative Assembly, to that Legislative Assembly:§

Provided that the President may, by public notification, direct that the provisions of this Part shall apply to any Union territory or part thereof subject to such exceptions and modifications as he may specify in the notification.§

Why this exists

Part IX of the Constitution, added by the 73rd Amendment in 1992, created a uniform framework for rural local self-government (Panchayati Raj) across India. Since Union territories don't have the same governmental structure as States—many lack an elected Legislature and have an Administrator instead of a Governor—Article 243L was needed to adapt the same rules to fit Union territories' different setup, while giving the President flexibility to handle territory-specific situations.

Common misconceptions

Myth: Panchayat rules don't apply to Union territories since they're not full States.
Fact: Article 243L specifically extends Part IX's Panchayat provisions to Union territories, just replacing 'Governor' with 'Administrator' and adapting Legislature references.
Myth: The President's power under the proviso is unlimited and can rewrite the whole Part however he likes.
Fact: The President can only specify exceptions and modifications through a public notification for applying the existing provisions to a Union territory or part of it—not create entirely new rules unrelated to Part IX.