Permanent Account Number (PAN) is the Indian Tax Identification Number. In India, there is a requirement to obtain an Aadhaar, which is a Unique Identification Number and serves as proof of identity in India. The Income Tax Statute mandates the linking of PAN with Aadhaar. Apparently, this provision seems to have been introduced to inter alia curb the nuisance of duplicate PAN.
Time and again, the government has extended the PAN-Aadhaar linking deadline. Currently, the deadline is 31 March 2021, keeping in mind the outbreak of the COVID-19 pandemic and its consequential hardships. Failure to meet the above deadline would render the PAN inoperative and may entail the following consequences:
- Higher deduction/collection of tax at source- With PAN becoming inoperative, it could be treated that a person does not have a PAN, and the deduction of tax will need to be done at higher rates. This will impact employees, shareholders, lenders and many more. Similarly, taxes could be collected at higher rates too;
- Credit for taxes - Though taxes would be deducted at a higher rate, getting credit for the same may be a challenge;
- Filing of tax return for FY 2020-21- The taxpayer may not be able to file its tax return or if accepted at the income tax portal, such tax return filed could be treated as defective/ invalid return;
- Undertaking Certain Specified Financial Transactions- The taxpayer may not be able to undertake certain financial transactions, such as sale/purchase of motorcar, immovable property, shares/ securities, cash deposits, etc.;
- Penalty of INR 10,000 - The law specifies penalties for non quoting of PAN, if the PAN becomes in-operative, this penalty would be attracted.
Manner of PAN-Aadhaar Linking
Income Tax Department has provided the following facilities to the taxpayers for linking of PAN and Aadhaar:
- Using 'Link Aadhaar' option at www.incometaxindiaefiling.gov.in ;
- Sending SMS ‘UIDPAN
<12 digit Aadhaar> <10 digit PAN>' to either 567678 or 56161.
Considering that non-linking of PAN and Aadhaar would invalidate the PAN, it could have far-reaching implications from a withholding tax perspective, mainly for large corporates.
In case of companies, if the employees/individual vendors have not carried out the above-mentioned exercise, there is a possibility that they may receive notices from the Income Tax Department for higher withholding of taxes for cases where PAN has become inoperative. Companies would have to ensure that all their employees have done this activity to ensure higher withholding tax does not apply while processing salaries. This would mainly impact employees where average withholding tax rates are below 20%.
Also, listed companies declaring dividends would have to ensure that all individual shareholders have done this activity otherwise, they would be obliged to withhold taxes at higher rates of 20%.
Overall this may result in an additional compliance burden on the companies as they would have to take a declaration from employees, vendors, etc., at the earliest as the deadline is 31 March 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.