Consequences of not linking Aadhar with PAN

CONSEQUENCES OF NOT LINKING AADHAR WITH PAN

Aadhaar, also known as a Unique Identity number, is a 12-digit number issued by the Unique Identification Authority of India (UIDAI). PAN is a 10-digit alphanumeric number allotted by the Income Tax (I-T) department.

Instances had come to the notice of the I-T Department that multiple PANs have been allotted to one person or one PAN has been allotted to more than one person. In order to have a robust way of de-duplication of PAN database, section 139AA was inserted in the Income-tax Act, 1961 (the Act) making it mandatory for a taxpayer who is eligible to obtain Aadhaar (i.e. Individuals), to quote his Aadhaar in the application form for PAN and return of income. Further, linking of PAN and Adhaar has also been mandated to those persons who obtained PAN before July 1, 2017.

From then, linking of PAN and Adhaar has been vigorously promoted by our Government and after many missed deadlines, the last date for the same was notified as March 31, 2022. Nevertheless, linking option is open for individuals by paying fine of INR 500 if linked by June 30, 2022 and INR 1000 if linked by March 31, 2023. Still there are individuals who have not linked their PAN with Adhaar.

For all those individuals, it is advisable to link on/before March 31, 2023. If not, such defaulted individuals might face heavy consequences, which is listed in the recently issued CBDT Circular no. 7/ 2022 dated March 30, 2022. In this regard, the consequences are analysed in the hands of different persons entering into transactions.

PAN-Aadhaar linking is mandatory to those who are eligible for Aadhaar number and qualify as residents. Notably, a resident individual is someone who has resided in India for 182 days or more in a year immediately preceding the date of application for Aadhaar enrolment. However, there is a possibility that a taxpayer may qualify as a resident under the Income Tax Act while with chances of being declared as non-resident under the Aadhaar act – for these taxpayers non-quoting of Aadhaar number in their return of income is allowed.

To the defaulting PAN holders:

Your PAN will be inoperative if you don’t link your Adhaar with PAN by March 31, 2023.
Even if PAN is quoted (eg – during transaction of purchase of shares, deposit into bank account, purchasing car etc.), such PAN being inoperative will not be considered as a valid one. So, the transaction could be rejected as well!
Penalty of INR 10,000 under Section 272B of the Act, for not holding valid PAN where you earn taxable income in India and are mandated to hold PAN as per Income Tax law.
You would be subjected to higher rates of TDS / TCS (as high as 20%) (considering no valid PAN exists)
Refunds pending will not be processed
Returns cannot be filed thereafter

To the sellers of goods/ services where buyers hold inoperative PAN:

Now, an additional burden is imposed on sellers. You, as sellers need to check if PAN of buyer is operative or not, whenever you enter into transaction (which mandates quoting of PAN) with individual.

If inoperative, you shall collect TCS at higher rates (considering Section 206CCA of IT Act), failing which you might be penalised for not complying with tax laws.

To the buyers of goods/ services where sellers hold inoperative PAN:

• Just like seller, buyers also have an additional burden to check if PAN of seller is inoperative.

• If inoperative, you, as buyers shall deduct taxes at source at higher rates (considering Section 206AB of IT Act), failing which you might be penalised for not complying with tax laws.

Given the above consequences, the following additional points still require clarifications:

1. There is no tool prescribed by the I-T department to identify if a PAN is ‘inoperative’. In that situation, the sellers / buyers would be additionally burdened by the process of verifying the validity of PAN.

2. PAN forms the basis for GSTIN and IE code. Any impact on such registrations on account of invalidity of PAN are not clarified yet.

Penalties in case PAN is not linked with Aadhaar:

If PAN is not linked with Aadhaar before the due date, then a host of penalties await for individuals. Under section 234H of the IT Act, a penalty of Rs1,000 is levied if failed to link PAN with Aadhaar.