The Saga of PAN and Aadhaar Linking in Income Tax

the-saga-of-pan-and-aadhaar-linking-in-income-tax


The story of linking of Aadhaar Number issued by UIDAI with the Permanent Account Number or PAN issued by the Income Tax Department begins from the introduction of Section 139AA of the Income Tax Act, 1961 by the  Finance Act, 2017 (7 of 2017). 

    Since then it became a matter of contest and many petitions were filed before the High Courts and Supreme Court challenging its validity and allowing taxpayers to file ITR without Aadhar number. Many court decisions and the issue of numerous notifications & circulars on the matter have grounded it in a complex state.

    The linking of PAN and Aadhaar has become a contentious issue since its introduction in the statute. The Supreme Court has allowed linking of PAN with Aadhaar. The apex court also said that Aadhaar is mandatory to file ITR and for applying for a new PAN. Section 139AA (2) of the Income Tax Act says that every person having PAN as on July 1, 2017, and is eligible to obtain Aadhaar, must intimate his Aadhaar number to tax authorities. 

    The Income Tax Department has introduced an 'instant' Aadhaar-based PAN allotment service. CBDT has extended  PAN-Aadhaar linking deadline till 31st March, 2020. This is the eighth time that the CBDT has extended the deadline for individuals to link their PAN with Aadhaar.

    This article aims to simplify the position on the status of linking of PAN with Aadhaar number as on date.


    Introduction

    Income Tax Act, 1961 was amended by the Finance Act, 2017 (7 of 2017) and section 139AA was inserted after section 139A.

    In this context, it should be noted that such provision was not present in the Finance Bill, 2017 presented by the then Finance Minister Mr. Arun Jaitley on 1st February 2017 with the Union Budget 2017. This provision was inserted in the Finance Act, 2017 afterwards.

    Section 139AA is reproduced below-


    Quoting of Aadhaar number.

    139AA. (1) Every person who is eligible to obtain Aadhaar number shall, on or after the 1st day of July, 2017, quote Aadhaar number—
    (i) in the application form for allotment of permanent account number;
    (ii) in the return of income:
    Provided that where the person does not possess the Aadhaar Number, the Enrolment ID of Aadhaar application form issued to him at the time of enrolment shall be quoted in the application for permanent account number or, as the case may be, in the return of income furnished by him.

    (2) Every person who has been allotted permanent account number as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to such authority in such form and manner as may be prescribed, on or before a date to be notified by the Central Government in the Official Gazette:

    Provided that in case of failure to intimate the Aadhaar number, the permanent account number allotted to the person shall be deemed to be invalid and the other provisions of this Act shall apply, as if the person had not applied for allotment of permanent account number.

    (3) The provisions of this section shall not apply to such person or class or classes of persons or any State or part of any State, as may be notified by the Central Government in this behalf, in the Official Gazette.

    Explanation.—For the purposes of this section, the expressions—
    (i) "Aadhaar number", "Enrolment" and "resident" shall have the same meanings respectively assigned to them in clauses (a), (m) and (v) of section 2 of the Aadhaar (Targeted Delivery of Financial and other Subsidies, Benefits and Services) Act, 2016 (18 of 2016);
    (ii) "Enrolment ID" means a 28 digit Enrolment Identification Number issued to a resident at the time of enrolment.

    Analysis of section 139AA

    Section 139AA of the Income Tax Act states that every person who has PAN as on July 1, 2017 is required to link his PAN with his Aadhaar number. If the PAN is not linked by Aadhaar by a date to be notified by the government then PAN would become invalid. This date has now been notified as September 30, 2019.

    The Notification provides the sunset date for linking of Aadhaar with PAN. Pursuant to the said notification, all taxpayers holding a valid PAN on 1 July 2017 are obliged to link their PAN with Aadhaar on or before 30 September 2019. Default can lead to invalidation of PAN.

    The earlier deadline to link PAN and Aadhaar was March 31, 2019 but, there was no clarity among chartered accountants and legal experts as to whether PAN will become inactive if not linked with Aadhaar by March 31, 2019. This is because as per sub-section (2) of section 139AA of the Income Tax Act, the last date of linking was to be notified by the government via notification in the official gazette only and there was no gazette notification notifying the deadline of March 31 for this purpose.

    Once a person's PAN becomes invalid, the person would be deemed not to possess a PAN and other provisions of the Income Tax Act will apply. This could mean penalty of Rs 10,000 under section 292B, higher deduction of TDS due to non-availability of PAN etc.

    The Circular clarifies that taxpayers shall be required to mandatorily quote Aadhaar in all returns of income furnished on or after 1 April 2019. Returns filed till 31 March 2019 without quoting Aadhaar, as a matter of concession, shall be processed without causing any adverse consequences for non-quoting of Aadhaar.

    There were ambiguity and confusion amongst the stakeholders on the last date of Aadhaar- PAN linking and its likely adverse consequences. There was a divided view on the interpretation of various CBDT orders whereby the date of compliance was extended from time to time till 31 March 2019. The present Notification sets the issue at rest by formally notifying the sunset date of 30 September 2019 for linking Aadhaar with PAN by all the taxpayers. The Circular further provides assurance on ROIs filed till 31 March 2019 without quoting Aadhaar not triggering adverse consequences.



    The Supreme Court while upholding the constitutional validity of Aadhaar has also upheld the mandatory linking of PAN with Aadhaar.

    The above provision is divided into two limbs-

    Category-A: Eligible person to Quote Aadhaar Number [Section 139AA(1)]

    Every person who is eligible to obtain Aadhaar number shall, on or after 1.7.2017, quote Aadhaar number—

    (i) in the application form for allotment of PAN (Permanent Account Number)

    (ii) in the return of income.

    However, where the person does not possess the Aadhaar Number, the Enrolment ID of Aadhaar application form issued to him at the time of enrolment shall be quoted in the application for permanent account number or. as the case may be, in the return of income furnished by him.

    Category-B: Eligible Person to intimate Aadhaar Number [Section 139AA(2)]:

    Every person who has been allotted permanent account number as on 1.7.2017, and who is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to such authority in such form and manner as may be prescribed, on or before a date to be notified by the Central Government in the Official Gazette.

    However, in case of failure to intimate the Aadhaar number, the permanent account number allotted to the person shall be deemed to be invalid and the other provisions of this Act shall apply as if the person had not applied for allotment of the permanent account number.

    When Provisions of Section 139AA Not Applicable

    When Provisions of Section 139AA Not Applicable to certain Persons or a State [Section 139AA(3)]:

    The provisions of this section shall not apply to such person or class or classes of persons or any State or part of any State, as may be notified (See Notification No. 37/2017 below) by the Central Government in this behalf, in the Official Gazette.

    Notification No. 37/2017, dated 11.5.2017

    In exercise of the powers conferred by sub-section (3) of section 139AA of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that the provisions of section 139AA shall not apply to an individual who does not possess the Aadhaar number or the Enrolment ID and is:—

    (i) residing in the States of Assam, Jammu and Kashmir and Meghalaya;

    (ii) a non-resident as per the Income-tax Act, 1961;
    of the age of eighty years or more at any time during the previous year;

    (iii) not a citizen of India.

    This notification shall come into force with effect from the 1st day of July, 2017.


    Who is eligible to obtain Aadhaar number


    Section 139AA of the Income-tax Act, 1961 as introduced by the Finance Act, 2017 provides for mandatory quoting of Aadhaar/Enrolment ID of Aadhaar application form, for filing of return of income and for making an application for allotment of Permanent Account Number with effect from July 1, 2017.

    Mandatory quoting of Aadhaar or Enrolment ID will apply only to a person who is eligible to obtain Aadhaar number.

    As per the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, only a resident individual is entitled to obtain Aadhaar.

    Resident as per the said Act means an individual who has resided in India for a period or periods amounting in all to 182 days or more in the 12 months immediately preceding the date of application for enrolment.

    Aadhaar Card is available to residents in India only.


    Aadhaar Enrolment to NRIs and PIOs

    Aadhaar Card enrolment is presently available to residents in India. OCI Cardholders who stay in India for a long time (over 182 days in twelve months immediately preceding the date of application for enrolment) and have an Indian address can also enroll for Aadhaar Card in India. NRIs, although they are citizens of India, are not eligible for Aadhaar Card if they have not stayed for more than 182 days or more in the last 12 months. Upon completion of 182 days of their stay in India in the last 12 months immediately preceding the date of application for enrolment, NRIs can apply for Aadhaar Card.

    Further, as per Section 139AA of the Income-tax Act, 1961, every person who is eligible to obtain Aadhaar number shall, on or after the 1st day of July, 2017, quote Aadhaar number— 
    (i) in the application form for allotment of permanent account number;
    (ii) in the return of income. 

    The above provisions apply to persons who are eligible to get Aadhaar. Under section 3 of the Aadhaar Act, 2016, only a resident is entitled to get Aadhaar. 

    Therefore, the provisions of Section 139AA quoted above regarding linking of Aadhaar to PAN or the requirement of quoting the Aadhaar number in the return shall not apply to a non-resident, who is not eligible to get Aadhaar.

    However, on 20.09.2019 the Central Government vide a  Notification No. 3119 dated 20th September 2019 relaxed the norms for non-resident Indians and stated that Non-Resident Indians can now apply for Aadhaar after his arrival in India and shall be entitled to obtain an Aadhaar number.

    The Ministry of Electronics and Information Technology on 20 September 2019 issued the gazette notification.

    Consequent to the publication of the notification N. 3119 dated September 20, 2019, UIDAI issued a Circular on 23 September 2019 and has listed the procedures for the enrollment of NRIs for Aadhaar.


    How to Link PAN-Aadhaar

    The income tax department has released a pamphlet describing the methods of linking PAN with Aadhaar Number.

    the-saga-of-pan-and-aadhaar-linking-in-income-tax
    Image Source: Income Tax department

    Linking of PAN with Aadhaar number in case of Name mismatch


    UIDAI has clarified that in order to Link Aadhaar with PAN, ideally your demographic details (i.e. Name, Gender and Date of Birth) should match in both the documents.

    In case of any minor mismatch in Aadhaar Name provided by taxpayer when compared to the actual data in Aadhaar, One Time Password (Aadhaar OTP) will be sent to the mobile registered with Aadhaar. Taxpayers should ensure that the date of birth and gender in PAN and Aadhaar are exactly same.

    In a rare case where Aadhaar name is completely different from name in PAN, then the linking will fail and taxpayer will be prompted to change the name in either Aadhaar or in PAN database.


    UIDAI has discontinued the partial matching in demographic details w.e.f 01.12.2017. Refer UIDAI Circular F. No. K-11022/631/2017-UIDAI (Auth-II) with regard to discontinuation of partial match in Demographic Authentication w.e.f 1-12-2017.


    Present status of linking of PAN with Aadhaar number

    CBDT vide Notification No. 107/2019 dated 30.12.2019 notified the last date to link PAN-Aadhaar is 31-03-2020. Prior to this, the last notified date for the PAN-Aadhaar linking was 31-12-2019.

    Section 139AA further provides that the manner of making the PAN inoperative will be prescribed. Now CBDT has prescribed the manner in which a PAN will be made inoperative if not linked to Aadhaar.

    CBDT has issued a Notification No. 11/2020 dated 13-02-2020 which provides that where a person, who has been allotted the permanent account number as on 01.07.2017 and is required to intimate his Aadhaar number under section 139AA(2), has failed to intimate the same on or before the 31st day of March, 2020, the PAN of such person shall become inoperative immediately after 31-03-2020 for the purposes of furnishing, intimating or quoting under the Act.

    It further states that where a PAN has become inoperative, then it shall be deemed that he has not furnished, intimated or quoted the PAN as required under the law and he shall be liable for all the penal consequences under the Act for not furnishing, intimating or quoting the permanent account number (PAN).

    It is further provided that an inoperative PAN can be reactivated after 31-03-2020 by linking the PAN with his Aadhaar.

    Through this notification, the CBDT amended Income Tax Rules, 1962 and inserted Rule 114AAA with heading "manner of making permanent account number inoperative".

    It may be noted that the PAN does not become invalid but becomes inoperative if the same is not linked with Aadhaar.

    Recently, on 16th March 2020, the Income Tax department on Monday issued a public message saying it was "mandatory" to link PAN with Aadhaar and advised people not to "miss" the stipulated deadline of March 31.

    The department had last month said PAN will become "inoperative" if it is not linked with Aadhaar by this date.


    In a tweet, the department has alerted the taxpayers by remnding that "It is mandatory to link your PAN and Aadhaar before 31st March, 2020.


    You can do it through Biometric Aadhaar authentication & also by visiting the PAN service centers of NSDL and UTITSL."


    The tweet of the income tax department also embedded a video that describes two ways to link PAN-Aadhaar.


    Interchangeability of PAN-Aadhaar

    The Union Budget 2019 had amended Section 139A of the Income-tax Act, 1961 to provide for interchangeability of PAN and Aadhaar number. However, an amendment to give effect was pending.

    A notification (Notification No. 95/2019) to this effect was issued by the Central Board of Direct Taxes (CBDT) on 06.11.2019 and has amended over 100 forms and returns to provide for interchangeability between permanent account number (PAN) and Aadhaar number.

    Suggested Readings on PAN-Aadhaar Linking:

    CBDT Notification No. 56/2017 dated 27.06.2017 (Amending Income Tax Rules to intimate the Aadhaar Number to the Income Tax Department and amending the PAN Application Form)
    CBDT - DIT (Systems) Notification No. 7/2017 dated 29.06.2017 (Procedure of intimating AADHAAR Number to the Income Tax Department by Permanent Account Number (PAN) holder)
    CBDT Circular No. 2/2018 dated 15.02.2018 (Clarifying ther amendments in Finance Act, 2017. Read the relevant para 58 of the Circular.)
    CBDT Circular No. 6/2019 dated 31.03.2019 (Giving effect to the judgement(s)/order(s) of Hon'ble Supreme Court on Aadhaar-PAN for filing return of income)
    CBDT Notification No. 95/2015 dated 30.12.2015 (Aadhaar Number included in Form 60)
    CBDT - DIT(Systems) Notification No. 1 of 2018 dated 05.04.2018 (Procedure for submission of Form No. 60)
    CBDT Notification No. 59/2019 dated 30.08.2019 (For PAN cards to be issued online instantly using Aadhaar and PAN will be generated automatically if a taxpayer uses Aadhaar for filing returns)
    CBDT Notification No. 95/2019 dated 06.11.2019 (Inter Changeability of PAN and Aadhaar)



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