This article is written by Shambhavi, a student of Banasthali Vidyapeeth.
What is PAN?
Permanent Account Number or PAN is a means of identifying various taxpayers in the country. It is a ten-digit unique identification alphanumeric number containing both alphabets and numbers, assigned to Indians, mostly to those who pay tax. It is an electronic system through which, all tax related information for a person or company is recorded against a single PAN number. This acts as the primary key for storage of information and is shared across the country. It is issued in the form of a laminated tamper proof card by the Income Tax Department of India. Permanent Account Number is unique to an individual or entity and it is valid across India. Once PAN is allotted to an individual or entity is unaffected by a change of name, address within or across states in India or other factors.
Why do we need PAN?
The primary function of PAN is to bring a universal identification to all financial transactions and to prevent tax evasion by keeping track of monetary transactions, especially those of high-net-worth individuals who can impact the economy. PAN is mandatory when filing income tax returns, tax deduction at source, or any other communication with Income Tax Department. It is also steadily becoming a mandatory document for opening a new bank account, a new landline telephone connection, a mobile phone connection, purchase of foreign currency, bank deposits above the amount of 50,000, purchase and sale of immovable properties, vehicles etc.
PAN has now taken on the role of “identifier” beyond the Income Tax Department as it is now required for various activities like opening of bank account, opening of demat accounts, obtaining registration for Service Tax, Sales Tax /VAT, Excise registration etc. It is leveraged to become Common Business Identification Number (CBIN) or simply Business Identification Number (BIN) for providing registration to a number of government departments and services.
What is AADHAAR?
Aadhaar number is a 12- digit random number issued by the Union Identification Authority of India (UIDAI) to the residents of India after satisfying the verification process laid down by the authority. Any individual, irrespective of age and gender, who is a resident of India, may voluntarily enrol to obtain Aadhaar number. Person willing to enrol has to provide minimal demographic and biometric information during the enrolment process which is totally free of cost. It is one of the world’s largest biometric ID system.
Why do we need Aadhaar?
There are various uses of Aadhar Card which are publicised by the government through awareness campaigns but there are few uses that many of the users would not be aware of. Aadhar can be used as identity card in availing of subsidies, acquisition of passport, opening bank accounts, digital life certificate, disbursing provident fund, LPG Subsidy and so on.
Section 139AA Upheld By SC?
The constitutional validity of section 139AA of the IT Act came into question before the Hon’ble Supreme Court. The Supreme Court upheld the constitutional validity of this section in entirety except for providing a partial relief. The relief was in respect of clause (d) above where the Supreme Court held that non obtaining of an Aadhaar number would not lead to PAN becoming invalid. Accordingly, all other provisions of Section 139AA in respect of quoting Aadhaar or Aadhaar enrolment number in the return of income or linking of Aadhaar with PAN etc would continue to hold good.
The Supreme Court, in September last year, had declared the Centre’s flagship Aadhaar scheme as constitutionally valid and held that the biometric ID would remain mandatory for the filing of I-T returns and allotment of PAN.
Section 139 AA (2) of the Income Tax Act says that every person having PAN as on July 1, 2017, and is eligible to obtain AADHAR, must intimate his/her Aadhaar number to tax authorities.
The 31 December, 2019 Deadline
As per the latest public message which has been given by Income Tax Department, it is mandatory to link your PAN with Aadhaar by the end of this year. The Department said, “Building a better tomorrow! To reap seamless benefits of income tax services, complete the vital link before 31st December, 2019.”
Meanwhile there are various consequences if the individual doesn’t link PAN with Aadhaar. The PAN will become inoperative if it is not linked to Aadhaar till the 31st December deadline notified by the income tax department. This provision has come to effect from September 1, 2019, in keeping with the amended rule of July 2019. However, the government has till date not specified the meaning of the term ‘inoperative’ as used in the new rule.
The last date for the mandatory linking of the Permanent Account Number (PAN) with Aadhaar has been extended from the earlier deadline of December 31, 2019 to the month of March, 2020. (Note: This was not a part of the original write-up)
In order to protect the validity of transactions previously carried out through such PAN, it is proposed to amend the said provision so as to provide that if a person fails to intimate the Aadhaar number, the PAN allotted to such individual shall be made inoperative in the prescribed manner.