The Indian government had introduced Aadhaar in the year 2009 as a 12-digit unique identification number issued to every individual resident in India.
Aadhaar is based on an individual’s biometric details such as iris scan and fingerprints, and demographic information like date of birth, address, etc.
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One of the key objectives of introducing Aadhaar was to ensure targeted delivery of government subsidies, benefits and services to the disadvantaged section of the population.
Subsequently, Aadhaar also became the primary document for meeting the know your customer (KYC) norms used by banks, financial institutions, telecom companies and other businesses that maintain customer profiles. The government also made Aadhaar mandatory for income tax purposes, wherein a provision was introduced to link it with the PAN.
Section 139AA was introduced in the Union Budget 2017 which provides that every person who is eligible to obtain Aadhaar under the Aadhaar Act shall link his /her PAN with effect from 1 July 2017. It was provided that in the absence of availability of Aadhaar or non-linkage of Aadhaar, the PAN allotted to the person will be deemed as invalid.
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An ‘eligible person’ as per the Aadhaar Act is any person who has resided in India for more than 182 days in the 12 months immediately preceding the date of application for enrolment. The Central Board of Direct Taxes (CBDT) had issued a notification in May 2017 exempting the following categories of individuals from obtaining Aadhaar, provided they do not already hold Aadhaar or have not enrolled for the same:
(i) Residents of states of Assam, Meghalaya and Jammu & Kashmir;
(ii) Non-resident (NR) as per income-tax Act;
(iii) Individuals whose age is 80 years or more at any time during the tax year; and
(iv) Individuals who are not citizens of India.
In view of the biometric and personal data collected by the government being shared with other service providers, Aadhaar’s constitutional validity was challenged in petitions filed before the Supreme Court of India (the highest court of the country) on the ground that it violates the right to privacy.
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The Supreme Court had in July 2017 upheld the validity of linking Aadhaar with PAN. However, the provision related to invalidating PAN was directed to be kept on hold as the examination of constitutional validity of Aadhaar was pending before a larger bench of the Supreme Court. Therefore, CBDT had extended the deadline for linking of PAN with Aadhaar till 31 March 2019.
The Supreme Court has in a recent decision upheld the constitutional validity of Aadhaar stating that the government has a valid and legitimate state interest; and plugging the loopholes in the law would be adequate remedy for the concerns raised rather than striking off the law in entirety. Thus, the stay granted on invalidation of PAN due to non-linking of Aadhaar would now become inoperative with effect from 1 April 2019.
In the absence of PAN, the taxpayer would not be allowed to file his /her Indian income tax return. Non-filing of tax return may trigger other penal consequences like levy of interest and/or penalty for non-filing of tax return, delay / non-processing of tax refund, denial of set-off/carry forward of losses, etc. Also, non-filing of a tax return in India may lead to other impediments such as obtaining bank loan, obtaining Visa for travel to certain countries from India, etc. In the absence of a valid PAN, the tax withholding may be at a higher rate of 20% on specified receipts like interest, commission, rent, etc.
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Apart from tax returns, PAN is required to be quoted in a host of other specified transactions which would get impacted in case of invalidation of PAN. The transactions include: sale or purchase of a motor vehicle or vehicle other than two-wheeled vehicles; application for issue of a credit or debit card; opening of demat account; opening an account with a banking company or a co-operative bank (other than a Basic Savings Bank Deposit Account and a time-deposit less than ₹ 50,000 or aggregating to less than ₹ 5 lakh during a financial year); sale or purchase of any immovable property for an amount exceeding ₹ 10 lakh; payments in cash exceeding specified limits for hotel bills, purchasing foreign exchange, etc.
In view of the implications arising on invalidation of PAN in India, every resident individual who is required to file a tax return in India should evaluate the requirement of obtaining Aadhaar as per Aadhaar Act and then ensure linking it with their PAN within the prescribed timeline, ie 31 March 2019.
Non-residents who already have both Aadhaar and PAN, should ensure that the linking is completed so that they are able to file their tax returns for any income in India and enter into the specified transactions which require PAN to be quoted.
1). How to link Aadhaar with PAN?
Individuals who already have Aadhaar, can link the same with PAN on income tax e-filing website or through SMS from registered mobile
A. Linking through e-filing website
Step 1. Visit the portal https://www.incometaxindiaefiling.gov.in and select option ‘link Aadhaar’ under ‘Profile settings’.
Step 2. Enter your PAN and Aadhaar number in the form.
Step 3. Enter your name as mentioned in your Aadhaar card.
Step 4. In case only your birth year is mentioned on your Aadhaar card, you may tick the option provided.
Step 5. Enter the captcha code mentioned in the image for verification
Step 6. Click on the “Link Aadhaar" button.
Step 7. A pop-up message will appear that your Aadhaar will be successfully linked with your PAN.
B. Linking through SMS from registered mobile
Type the message UIDPAN<12 Digit Aadhaar> <10 Digit PAN> and send the message to either 567678 or 56161 from your registered mobile number.
2). Is it mandatory to quote Aadhaar in tax return form?
It is mandatory for resident individuals to quote Aadhaar number in the income-tax return form. The Aadhaar Enrolment Number may be quoted in case Aadhaar has been applied for but has not yet been allotted to the individual.
Rajashree Sarna contributed to the article.
Vikas Vasal is national leader tax–Grant Thornton India LLP.