Over the past year, I have handled multiple cases where Non-Resident Indians (NRIs) were caught off guard by an unexpected problem — their PAN had been marked ‘Inoperative’. In almost every case, the individual had obtained PAN during their resident years in India, subsequently relocated abroad, became a tax resident (and sometimes citizen) of another country, and never enrolled for Aadhaar.
The problem rarely surfaces during routine compliance. It usually appears at the most inconvenient moment — during a property sale, remittance of funds, or execution of a high-value transaction.
1. The Root Cause – Database Mismatch
The Income-tax database frequently continues to display the ‘Indian Citizen’ flag as ‘Yes’. The department does not automatically get updated when an earlier Indian resident becomes a non-resident or acquires foreign citizenship.
Because the system still treats the PAN holder as an Indian resident, Aadhaar linkage is expected. When Aadhaar is not linked, the PAN is marked inoperative — even though non-residents are not required to obtain Aadhaar.
2. The Financial Impact – Higher Withholding
The real consequence is not procedural inconvenience. It is higher TDS.
In long-term capital gain cases on sale of immovable property, the applicable tax rate may be 12.5% (plus surcharge and cess). In many cases — after indexation or treaty relief — the effective tax liability may be in the 5–7% range.
However, if the PAN is inoperative, withholding may increase to 20% or more. The buyer deducts conservatively to remain compliant, and the seller suffers the liquidity loss.
3. The Cost of Inaction – Capital Blockage
On a property sale of ₹2 Crore, the actual tax liability may compute to ₹12–14 lakh. But with 20% TDS, nearly ₹40 lakh could be deducted.
The excess remains locked until the return is filed and refund processed. For NRIs managing overseas investments, loan obligations, or currency exposure, this delay is not merely administrative — it is financially disruptive.
4. Rectification Is Not Instant
Regularising the PAN is a two-step process — transfer of jurisdiction to the Non-Resident Ward, followed by operationalisation without Aadhaar requirement.
In practice, depending on jurisdiction and administrative timelines, this may take up to three months. It requires follow-up and structured liaison.
5. Never Apply for a Fresh PAN
In urgency, some individuals attempt to apply for a new PAN as a non-resident. This can create a far bigger compliance problem.
Holding multiple PANs is prohibited and may attract penalties. Creating a second PAN instead of correcting the existing one can trigger duplication issues, future notices, and avoidable legal exposure.
The solution is correction — not duplication.
6. A Simple Check Today Can Prevent a Costly Surprise Tomorrow
If you once lived in India and now reside abroad, do not assume that the system reflects your current status.
Before entering into any property transaction or financial deal, verify the operational status of your PAN on the Income Tax e-filing portal (https://eportal.incometax.gov.in).
This is not a technical formality. It is a financial safeguard.
Spend two minutes checking your PAN status today and act now if its in the INOPERATIVE status. It may save you months of refund follow-up and lakhs of rupees in blocked capital tomorrow.
******
Author: CA. Raj Doshi, Mumbai
Disclaimer: The views expressed are personal and for informational purposes only. This article does not constitute professional advice. Readers are advised to consult their tax advisors before taking any action based on the above discussion.
Author Bio
