Mandatory Aadhaar in tax returns: problem or solution?
Recently, when Budget 2017 was passed, a new provision was inserted in the tax laws, making the quoting of Aadhaar number mandatory in application form for Permanent Account Number (PAN) as well as in the return of income with effect from 1 July 2017. The objective, as clarified by the finance minister, is to link PAN with Aadhaar, and identify persons who avoid taxes by having duplicate PANs. While the objective is laudable, what are the likely problems for taxpayers?
The provision requires every person having a PAN, who is eligible to obtain Aadhaar number, to intimate the latter to a prescribed authority in a prescribed form before a notified date. If he does not do so, the PAN will be treated as invalid, and as if it had never been applied for. Power is given to notify persons, classes of persons or any state to which these provisions will not apply.
What does this mean? From what date would the PAN become invalid? Does it mean that such a taxpayer would no longer be able to file income tax returns? Does this mean that his income tax returns furnished till that date would be invalid? Does it mean that any returns filed but not processed would thereafter not be processed? Are there any extenuating circumstances, such as where a person is out of India during that period, or where a person is hospitalized, where a delay would be permissible? Can a power of attorney holder sign on behalf of the taxpayer?
There are many very senior citizens, who have been unable to obtain an Aadhaar number, because their fingerprints are no longer legible. What happens to such persons? Should there not be a remedy available to them to directly approach Unique Identification Authority of India (UIDAI) to allot them an Aadhaar number? Does their PAN become invalid for no fault of theirs, other than old age?
A non-resident should not be affected, since only residents of India are eligible to obtain an Aadhaar number. In practice, one wonders whether the tax authorities will factor this into their system and procedures, and not create problems for such persons. What happens when a non-resident, who was not required to obtain Aadhaar, becomes a resident? What if he is a foreign citizen? Would he face difficulties in getting an Aadhaar number? By when does he have to obtain an Aadhaar number? Which concept of residence applies for eligibility for Aadhaar—the concept of residence under tax laws, or the concept of residence under the exchange control laws (Foreign Exchange Management Act)?
Almost all courts have taken the view that the status of a Trust for the purposes of tax laws is that of an individual. A Trust obviously cannot obtain an Aadhaar number, since only a natural individual can do so. Will the tax authorities take cognizance of this, and not cancel the PAN obtained by Trusts?
One only hopes that all such situations are factored in by the government while notifying the exemptions: that a sufficiently long time is given for providing Aadhaar number, that provisions are made for exceptions, and that the difficulty in obtaining Aadhaar in certain types of cases is eliminated.
What are the consequences of a PAN being treated as invalid? There are severe consequences. Tax will be deducted at source at 20% from income as against the normal lower applicable rate; and the person will not be able to file his return of income, which will invite consequent penalty and possible prosecution. He will not be able to acquire or sell property or a motor car, open a bank or demat account, purchase mutual fund units or debentures or bonds exceeding Rs50,000, or pay life insurance premium exceeding Rs50,000 without furnishing Form No. 60, since PAN is mandatory for all such transactions.
Should such severe consequences be invited on a person, just because the income tax department bungled in allotting PANs in the initial years? Many persons applied for a PAN, as required by the law, and were duly allotted one. The tax department, on its own accord, allotted further PANs to them. In most cases, taxpayers did not even know that more than one PAN had been allotted to them. Many taxpayers, who are trying to cancel their duplicate PANs, are unable to do so, because the Tax Information Network centres refuse to accept the applications, insisting on some impossible documents. Should not the process of cancellation of a duplicate PAN be made easier, rather than further harass the taxpayers?
Besides, one hears the finance minister and the tax department lamenting about how very few taxpayers are currently filing their income tax returns. Would this not result in even more taxpayers unable to file their tax returns? Does the government want to increase tax compliance, or create more obstacles? The solution to weeding out duplicate PANs was perhaps far simpler. Just use a software that matches various details in a database to identify duplicates, follow up on these, and cancel the duplicate PANs after correspondence with the taxpayers.
This would, however, require effort from the tax department. It is obvious that the tax authorities prefer not to take that effort, even if it results in harassment and huge problems for taxpayers.
Gautam Nayak is a chartered accountant.