Dubai: If you are a UAE-based Indian expat who routinely makes financial transactions back home and also make it a point to file taxes on any income generated back home, you’re likely familiar with how important your Permanent Account Number (PAN) is in such instances.
However, that will no longer be the case since July 1. Here’s why. It was required by India’s tax authority for all tax payers to mandatorily link their PAN, an account number linking all tax-payer transactions, with Aadhaar, an identification number serving as a proof of identity and residence.
The last date to link PAN with Aadhaar was June 30, 2023, meaning if a tax-paying Indian citizen has not linked both cards by this date, his or her PAN becomes ‘inoperative’ – making it very difficult to conduct various financial transactions in India. But does this impact Non Resident Indians (NRIs)?
If NRIs are holding Aadhaar along with PAN, it is mandatory for them to link it, but if they have missed the deadline they can still link it by paying the penalty
PAN cards turn unusable after June 30 deadline
“If NRIs are holding Aadhaar along with PAN, it is mandatory for them to link it,” explained Dixit Jain, managing director at The Tax Experts DMCC, a Dubai-based tax advisory firm. “However, if they have missed the deadline of linking they can still link it by paying the penalty.”
“NRIs who do not have an Aadhaar card are exempted to do so [link PAN with Aadhaar], however, they must update their residential status as a NRI on the Indian income tax portal. This is so that the relevant authority knows that they are under the exempted category.”
In other words, as an NRI, you do not require an Aadhaar card, but if you do have one, you were required to link PAN card with Aadhaar before July 1. But what should be your next steps when your PAN has become ‘inoperative’ after the deadline has lapsed and a new deadline hasn’t been given?
How your PAN card can be made ‘operative’ again
If you missed the deadline, there is still a way to access your PAN to link the two cards, but this comes with a penalty. "The PAN can be made operative again in 30 days, upon the payment of fee of Rs1,000," India’s tax authority, the Central Board of Direct Taxes (CBDT), recently clarified.
Let’s say you pay the penalty of Rs1,000 and request that your PAN be linked with your Aadhaar on July 5, your PAN will become operative on or before August 4. However, India-based tax consultants caution that till the period PAN remains inoperative, there are other consequences till then.
“Although this should differ with your bank, not having a PAN often leads to higher tax charges on Indian-sourced incomes, no income tax refunds, etc,” said India-based banking and tax researcher Brijesh Meti. “So it’s advised to activate your PAN if it’s not linked to your Aadhaar.”
Step 2: Click 'Verify Your PAN'; on the page, enter PAN, DOB and mobile number
Step 3: Enter 6-digit OTP from the mobile number entered; click 'Validate'
How ‘inoperative’ PAN affects banking transactions
When your PAN becomes ‘inoperative’, what it means is that you won’t be able to make use of tax or banking services where you have to compulsorily provide the unique account number. This include financial services like filing your income tax return (ITR) or accessing your bank accounts.
“Once the PAN becomes inoperative, some of the other consequences will be non-processing of income tax refunds, higher Tax Deducted at Source (TDS) and Tax Collection at Source (TCS) on incomes and expenditures, inability to invest in bank FDs, mutual fund schemes etc,” added Meti.
“Additionally, a tax-payer will not be able to file his or her income tax returns going forward without his or her PAN card. As your PAN card is linked with your Indian bank accounts, you will also not be able to complete financial transactions. Also, your KYC (Know Your Customer) records will expire.”
TDS stands for Tax Deducted at Source. It is the tax amount that the government collects directly from the recipient’s income immediately when it is earned. The TDS is deducted at a certain percentage.
Alternatively, TCS stands for Tax Collected at Source. According to the Income Tax Act, a seller imposes TCS on their goods and collect them from buyers at the time of sale.
How NRIs can still link PAN-Aadhaar cards with penalty
According to the Indian Income Tax website, here is how you can still go ahead and link your PAN with Aadhaar card – albeit now with a penalty:
Step 1: Login https://www.incometax.gov.in/iec/foportal/, under the ‘Link Aadhar to PAN’ option
Step 2: Enter your PAN and Aadhar Number, and click on ‘Continue to Pay Through e-Pay Tax’
Step 3: Confirm PAN, mobile number to get OTP, after which you will be redirected to e-Pay Tax page
Step 4: Select ‘AY’ as 2024-25, type of ‘Payment’; Applicable amount will be pre-filled against ‘Others’
Step 5: Post payment of fee you can link your Aadhaar number with PAN on the e-filing portal
Since the income tax law to link PAN with Aadhaar came into in 2017, the deadline to link the cards has been extended many times. A penalty of Rs500 was first imposed if the PAN is linked to the Aadhaar on or after July 1, 2022, after which a higher penalty of Rs1,000 came into effect.
Unlike the past many years, the government has not extended the latest deadline of June 30, 2023, though it had done it many times earlier. This is why if your PAN was not been linked with your Aadhaar, your PAN would have become inoperative from July 1, as per the tax body’s notifications.
While you will be able to submit an application for your income tax returns (ITR) if your PAN and Aadhaar are not linked, tax experts flag that the tax department will not process your return until the two are linked, while adding that the process of filing ITRs get simpler after linking the cards.
This is why, as Indian expats, if you do have an Aadhaar, it is widely recommended that you link PAN with Aadhar so as to prevent any delays or rejections during your routine banking, investment or tax transactions back home in India.