The Future of PAN-Aadhaar Linking in India

For an Indian citizen, the two most important documents are the PAN card and the Aadhaar card. From opening a new bank account to purchasing mutual fund units, it is now mandatory to provide your PAN details. That said, a PAN card only serves as proof of your financial identity. On the other hand, your Aadhaar card serves as proof of your general identity. For this purpose, linking your PAN with your Aadhaar is important, as it ensures better monitoring and financial protection.

The Indian government has made it mandatory for Indian citizens to link their PAN card with their Aadhaar card, especially to avoid paying higher Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) rates. However, the last date to link Aadhaar and PAN expired on June 30th, 2023, while its implications came into effect from July 1, 2023.

Future of PAN-Aadhaar linking in India

As stipulated in order F. no. 370142/14/2022-TPL, dated 01-04-2023, and with Rule 114AAA, citizens had to link their Aadhaar with PAN by March 31st, 2022, or face consequences. The main consequence includes the PAN becoming inoperative. However, you can still link your inoperative PAN with Aadhaar by paying a fine.

Similarly, a CBDT circular in March 2023 specified that if the Aadhaar and PAN were not linked by June 30, 2023, the PAN would become inoperative effective from July 1, 2023. Taxpayers, as per the existing IT laws u/s 234H, can make their PAN operative again by paying a penalty of Rs. 1,000. The Income Tax Department also urged taxpayers to link their Aadhaar with their PAN before May 31st, 2024 and cautioned that failure to do so would result in the PAN card getting deactivated.

Talking about the future of PAN-Aadhaar linkage, it will remain mandatory, primarily to curb tax evasion and enhance financial transparency. If you do not link your Aadhaar with your PAN, your PAN will become inoperative, and you won’t be able to make certain financial transactions. You may face several issues on online marketplaces and other platforms that require KYC verification. Furthermore, you will have to pay higher TDS and TCS rates. For example, if you haven’t linked your PAN with Aadhaar, you will have to pay 20% TDS on your bank or NBFC FDs.

Important points to remember about the Aadhaar-PAN linkage

Here are some important points to remember regarding the Aadhaar-PAN linkage and future implications:

• Enforcement of the linkage: The Indian government will likely continue with strict enforcement measures to ensure all taxpayers link their Aadhaar with PAN or face penalties and fines.
• No more extensions: While the Indian government and the Income Tax Department extended the deadline in the past, the last date to link their PAN with Aadhaar was June 30th, 2023. Now, taxpayers will have to pay the penalty before linking their PAN with Aadhaar.
• Digital integration: It is likely that the linkage will be further integrated into digital financial systems, making it easier to verify your identity during online transactions.
• Curbing tax evasion: The Indian government primarily intends to curb tax evasion by making it mandatory to link PAN with Aadhaar, thereby eliminating fake PANs and making financial activities more transparent.
• Impact on financial services: Banks and NBFCs will continue to rely on PAN-Aadhaar linkage for customer verification and prevent fraudulent activities.

Consequences of not linking PAN with Aadhaar

Let us take a closer look at some of the implications of not linking PAN with Aadhaar for taxpayers:

1. Deduction of TDS and collection of TCS at higher rates, even for cash withdrawals.
2. Forms 15G and 15H, which help you declare income falling below the taxable limit, will no longer be accepted. Even the previous forms submitted will be rendered invalid.
3. You will face several restrictions while investing in RBI Bonds and SGBs.
4. You will not be able to open and process transactions in Demat accounts.

Moreover, the Income Tax Department will not process your ITR until you link your PAN with your Aadhaar.

Conclusion

The Indian government has made it mandatory for Indian taxpayers to link their Aadhaar with their PAN, primarily to rein in tax evasion and bring more transparency to financial activities. The last date to link PAN with Aadhaar was 30th June 2023, after which the PAN would become inoperative. The government will likely continue with this mandate in the future, and taxpayers can make their PAN operative by paying a penalty of Rs. 1,000.