A. Overview:
Permanent Account Number (‘PAN’) is a 10-digit unique identification number issued by the Income Tax department to all judicial persons identifiable under the Income Tax Act, 1961 (‘the Act’). The primary objective of the PAN is to bring a universal tax identification to all the financial transactions and prevent tax evasion by keeping a track of all the monetary transactions.
The Central Government broke new ground when it gave legal sanctity to a 12-digit unique identification number called as Aadhaar number vide Aadhaar (Targeted Delivery of Financial and other Subsidies, benefits and services) Act, 2016. Aadhaar Card (‘Aadhaar’) was to be allotted to resident individuals of India based on their biometric and demographic data. The Central Government pushed Indian residents to link their Aadhaar with a host of services, including but not limited to a large number of social welfare schemes. It may be noted that more than 124 crore Aadhaar have been generated1 as on the date of this article. Against this, merely 42 crores PAN have been generated2. Furthermore, only 23 crores of these PAN have been linked with Aadhaar3.
The Hon’ble Finance Minister (‘Hon’ble FM’), Ms. Nirmala Sitharaman in her budget speech on July 5, 2019 proposed certain amendments to section 139A of the Income Tax Act, 1961 (‘the Act’). The budget proposed to make PAN and Aadhaar interchangeable implying thereby that a resident individual can now file his / her income tax return by quoting the Aadhaar number instead of the PAN.
It also proposed that the onus of the verification of the PAN and Aadhaar lies on receiver of such documents. These amendments are proposed for ease and convenience of the individuals filing their income tax return and simultaneously it is an effort to widen the tax base for the exchequer. It is also proposed to make PAN inoperative and not invalid, if not linked with Aadhaar.
B. Current provisions of the Act pertaining to Aadhaar and PAN:
Existing provisions of sub section (1) of section 139A of the Act, inter-alia, provide that every person specified therein, who has not been allotted a PAN shall, within such time, as may be prescribed, apply to the Assessing Officer for the allotment of PAN.
Also, Check how to get new pan card.
C. Proposed amendments vide Finance (No.2) Bill, 2019 (‘the Bill’):
It is proposed to amend section 139A of the Act by inserting a sub-section (5E), which provides that every person who is required to disclose the PAN under the Act, but is not allotted a PAN and possesses an Aadhaar, may disclose such Aadhaar in lieu of the PAN and such person to also be allotted a PAN on the basis of the demographic data obtained from
Unique Identification Authority of India (‘UIDAI’). Additionally, a person having a PAN has also intimated the Aadhaar, then he may disclose his Aadhaar in lieu of PAN.
Insertion of subsection 6A and 6B to section 139A of the Act:
It is proposed to further amend section 139A of the Act by inserting sub-section (6A) and (6B), which provides that every person entering into prescribed transactions, shall quote and authenticate his PAN or Aadhaar in the documents pertaining to such transactions in such manner as may be prescribed. It is also proposed that the onus of verification of PAN and Aadhaar lies on the person receiving such documents.
It is also proposed to amend section 272B of the Act, thereby levying a penalty of INR 10,000 for failure to comply with any of the provisions of section 139A of the Act.
The above amendments will be effective from September 1, 2019.
D. Challenges which may come up on account of inter-changeability of PAN and Aadhaar pursuant to amendment proposed u/s 139A of the Act:
Whilst the attempt and the efforts of the Central Government to allow inter-changeability of PAN with Aadhaar is well understood and appreciated, it is also very relevant and critical to examine the plausible issues and challenges that may crop up on implementing this proposal. While the idea is to increase the tax base and allow the Central Government to track the financial transactions of the major category of the population, which may be considered to be in nation’s interest and development, it is going to be a herculean task for the Central Government to make sure that there are no implementation / transition issues. A few of the challenges / issues that may crop up have been listed below:
> Glitches in interlinking PAN and Aadhar card: The process of linking Aadhaar card and PAN may fail if there is a mismatch in the individual’s personal details e.g. name, date of birth of the assessee, etc. It would be extremely pertinent to ensure that such glitches do not arise or are smoothened at the earliest failing which the implementation of the interlinking initiative will not yield the desired results. It may also lead to non-capturing of the information and linking it with a certain individual’s transaction history.
> Verifying the authenticity of documents: The onus of authenticity of PAN or Aadhaar also lies on the person receiving such documents. This proposed amendment shall create practical difficulties for the receiver as it will be difficult for individual to verify authenticity of such documents.
> Availing Income tax benefits: Inconsistency in quotation of Aadhaar and PAN will create practical difficulties for the individual to avail benefits and deductions e.g. tax credits if interlinking the respective databases regulated by income tax department and UIDAI isn’t carried out efficiently.
> Filing of TDS Returns: The proposed amendment will take effect from September 1, 2019, whereas the TDS returns for earlier period would have already been filed with PAN details of the assessee. It will be worthwhile to note whether the TDS return will now accept quotation of Aadhaar numbers as well. It may be noted that PAN / TAN are 10 digit numbers whereas Aadhaar is a 12 digit number. There will have to be changes to the
software codes on the department’s portal to allow quoting a person’s Aadhaar in the TDS return as against a PAN number.
> Amendment to other Acts as well: Application for GST registration number itself requires PAN details of the assessee. Therefore, failure to furnish PAN to GST authorities will create difficulty in allocation of GST number.
Also, PAN is mandatory for opening new bank accounts, thus, corresponding amendments need to be introduced under the banking regulations as well.
There may be many other challenges which may come up once the individuals commence quoting Aadhaar instead of the PAN. This may result in delay of carrying out transactions, registration of documents, undertaking statutory compliances, etc.
E. Conclusion
The proposed amendments will lead to expansion of the tax base. Both the database will co-exist, as individuals may prefer to use one identification platform over the other. However, in all likelihoods, at the back end, for every PAN issued there will be an Aadhaar.
It is recommended that where mentioning of PAN is mandatory, similar amendments should be also be brought into other Acts at the earliest. Also, the Government should proactively update the systems, link the two databases to ensure that there are no delays in the implementation of the proposed amendments and create adequate awareness amongst the masses, the government machinery as well as other relevant stakeholders so that the challenges and inconveniences faced by the common man are kept at minimum.
Note
1. https://uidai.gov.in
2.https://www.livemint.com/news/india/just-23-crore-pan-cards-linked-with-aadhaar-ahead-of-march-31- deadline-1549535307 199.html
3. https://www.livemint.com/news/india/just-23-crore-pan-cards-linked-with-aadhaar-ahead-of-march-31- deadline-1549535307 199.html
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