Aadhaar to be mandatory for income tax returns, getting PAN

New Delhi: The government on Tuesday proposed making Aadhaar, the unique number issued by the Unique Identification Authority of India, mandatory for filing of income-tax returns as well as for obtaining and retaining the permanent account number (PAN). It also proposed making cash transactions above Rs2 lakh illegal, reducing the limit from the earlier proposed one of Rs3 lakh, as per the official amendments to the finance bill 2017 moved by the government.

Once passed by Parliament, these amendments will further tighten the noose around tax evaders and aid the government’s drive against black money.

According to the amendments, from 1 July, every taxpayer will have to quote Aadhaar while applying for a PAN and while filing income-tax returns. Further, existing PAN holders will have to disclose their Aadhaar numbers to the government by a date that will be specified later. In case of failure to intimate the Aadhaar number, the PAN allotted to the person shall be deemed invalid.

The government’s move to link Aadhaar will help in weeding out tax evaders who have multiple PANs. Though the income-tax department has been seeding PAN with Aadhaar for the last few years, the pace of the linkage has not been very good.

Taxpayers who do not have an Aadhaar number are required to quote their Aadhaar enrolment number, the amendments said.

The finance bill is expected to receive the Lok Sabha’s nod on Wednesday.

The government’s proposal to cap cash transactions at Rs2 lakh will create a paper trail for all high-value transactions and hit purchases of real estate, jewellery and luxury goods.

While presenting the Union budget, finance minister Arun Jaitley had on 1 February proposed that the legal limit for cash transactions would be Rs3 lakh, in line with the recommendations of the Supreme Court-constituted Special Investigation Team (SIT) on black money.

Revenue secretary Hasmukh Adhia tweeted on Tuesday that the penalty for a violation would be a fine equivalent to the value of the transaction.

The government also removed provisions in the income-tax act that made tax collection at source mandatory for high-value cash purchases above Rs2 lakh to facilitate this new cap.

A clampdown on black money was one of the major electoral promises of the National Democratic Alliance in 2014 and the government has taken a number of steps, including enacting a stringent black money Act, to curb unaccounted overseas funds, bringing in amendments to the so-called benami Act to make it more effective in clamping down on assets held under other people’s names or indirectly, and the demonetization drive, invalidating older high-denomination currency notes.

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The SIT had also recommended capping cash holdings of individuals and companies at Rs15 lakh, but the government chose not to implement this recommendation because of practical difficulties in its implementation.

Though the government made Aadhaar mandatory for availing of government subsidies through the Aadhaar (targeted delivery of financial and other subsidies, benefits and services) Act, 2016 , in this instance, it is being made mandatory even when there is no direct outflow from the government exchequer.

“I don’t agree with it. It is contrary to the Supreme Court decision that Aadhaar is not mandatory. The government’s decision can be challenged by a writ petition in the court,” said Rahul Matthan, a partner at law firm Trilegal and a Mint columnist. “Aadhaar is useful to determine identity. But if you can prove identity through other means, then it should not be made mandatory. It will be cumbersome and counter-productive.”