• Parizad Sirwalla, Partner |
3 min read

In furtherance to the government’s thrust to promote digitalization and a unified tax system, the Government has made linking of Permanent Account Number (‘PAN’) of an individual with their Aadhaar number mandatory. This should help to eliminate possession of more than one PAN by an individual and tracking of various financial transactions etc.

The provisions of section 139AA of the Income-tax Act, 1961 (‘the Act’) require every person, who is eligible to obtain an Aadhaar number (as per the Aadhaar Act, 2016), to:

  • Quote Aadhaar/ Enrolment ID in PAN application form
  • Quote Aadhaar/ Enrolment ID in the Indian income tax return.

Further, every person who has a PAN and is eligible to obtain/ has an Aadhaar number, is required to intimate/link Aadhaar with PAN, in the prescribed manner.

It is also worthwhile to note that the Hon’ble Supreme Court of India, while adjudicating a special leave petition filed before it, has also upheld the provisions of section 139AA.

Due date for Aadhaar-PAN Linking

The above provisions were enacted in the year 2017, however the government has extended the due date for completing the linking multiple times in the past. Last notified date without payment of any fee was 31st March 2022.

Exemption available for specified NRIs

The Income tax department vide notification dated 11th May 2017, exempted the below specific categories of individuals, who do not hold Aadhaar and have also not applied for Aadhaar, from the above specified requirements of mandatory quoting of Aadhaar and linking of Aadhaar-PAN:

  • residing in the states of Assam, Jammu and Kashmir and Meghalaya; or
  • non-resident as per the Income-tax Act, 1961; or
  • of age 80 years or more at any time during the previous year; or
  • not a citizen of India.

In light of the above-mentioned notification, a Non-Resident Indian (NRI) may be exempted from the requirement of quoting Aadhaar / linking Aadhaar-PAN, only provided such individual has not obtained or applied for an Aadhaar in India.

Failure to link Aadhaar with PAN till date

Where an individual who is required to link Aadhaar with PAN fails to complete the same within the due date, following are the consequences, which have been made applicable / effective from 1st July 2023 onwards:

  1. PAN will become inoperative.
  2. Refunds (if any) due under the Act shall not be processed.
  3. No interest shall be paid on the above refunds for the period beginning from 1st July 2023 till the date on which the PAN becomes operative.
  4. Taxes required to be deducted on the incomes earned during the year will be deducted at the applicable rates or 20% whichever is higher.
  5. Taxes required to be collected on any payment would be collected at twice the applicable rates or 5% whichever is higher (subject to maximum of 20%).

A non-refundable fee of INR 1,000 is currently applicable while linking the Aadhaar with PAN after the due date.

Additionally, the individuals may face difficulties in completing the KYCs with banks / financial institutions and portals in respect of their financial transactions / investments.

In case of any PAN linked with Aadhaar after becoming inoperative, the PAN shall become operative within 30 days of linking/ intimation of Aadhaar number. Once late fee is paid at the time of linking, typically the same takes 4-5 days to be updated on the income-tax portal, only after which the linking process can be done.

Accordingly, it is important for NRIs to ensure linkage of Aadhaar with PAN so as to avoid any adverse consequences and challenges in financial transactions.

A version of this article was published on Dec 01, 2023  by Times of India Online.