Permanent Account Number (PAN) not linked to Aadhaar as of March 31, 2019 — the current deadline to link PAN and Aadhaar — will become inoperative, the Income Tax Department said in a gazette notification on February 13 (see below). The Department said that for people whose PAN becomes inoperative, will be considered as not having furnished their PAN, and will be “liable for all the consequences under the Act for not furnishing, intimating or quoting the permanent account number”. However, the notification also allowed inoperative PAN to be linked with Aadhaar (more on that below). With this notification, the Income Tax Department has added a new rule 114AAA in the Income-tax Rules, 1962. Here’s what it says:

“114AAA. Manner of making permanent account number inoperative. (1) Where a person, who has been allotted the permanent account number as on the 1st day of July, 2017 and is required to intimate his Aadhaar number under sub-section (2) of section 139AA, has failed to intimate the same on or before the 31st day of March, 2020, the permanent account number of such person shall become inoperative immediately after the said date for the purposes of furnishing, intimating or quoting under the Act.” – from the gazette notification [emphasis ours]

Inoperative PAN can be linked to Aadhaar: However, the notification allows people to link their PAN with Aadhaar even after March 31, 2020, and those PAN cards will “become operative from the date of intimation of Aadhaar number” — suggesting that even an inoperative PAN can be linked to Aadhaar:

“Where the person referred to in sub-rule (1) has intimated his Aadhaar number under sub-section (2) of section 139AA after the 31st day of March, 2020, his permanent account number shall become operative from the date of intimation of Aadhaar number for the purposes of furnishing, intimating or quoting under the Act and provisions of sub-rule (2) shall not be applicable from such date of intimation.” – from the gazette notification [emphasis ours]

Section 139A of Income Tax Act mandates PAN-Aadhaar linkage: The Supreme Court, in its 2018 judgement on Aadhaar, had upheld the constitutional validity of Aadhaar in its judgement but limited its use to social welfare schemes, for getting a PAN card and filing income tax returns. Section 139 AA (2) of the Income Tax Act says that every person having PAN as on July 1, 2017, and eligible to obtain Aadhaar, must intimate his Aadhaar number to the tax authorities.

Over 175 million PAN Cards are yet to be linked to Aadhaar: As of January 27, 2020, over 175 million PAN cards have not been linked to Aadhaar, Minister of State for the Finance Ministry, Anurag Thakur had informed Parliament on February 4, 2020. At the same time, more than 307 million PAN have been linked with Aadhaar, he had said.

Gujarat HC had held PAN not linked to Aadhar can not be declared inoperative until Aadhaar Act attains finality

This development comes after the Gujarat High Court, on December 27, 2019, had ruled that PAN not yet linked with Aadhaar can not be declared inoperative for the purpose of filing income tax returns, since the validity of the Aadhaar Act being introduced as a Money Bill has not yet “attained finality” in front of the Supreme Court. While delivering the judgement, a division bench of the High Court had held:

“…the applicant needs to be protected by directing that his PAN shall not be declared inoperative and the applicant may not be subjected to the proviso to sub-section (2) of section 139AA of the [Income Tax] Act till the judgment of the Supreme Court in Rojer Mathew v. South Indian Bank Ltd. is delivered and available. In the opinion of this court, grant of such interim relief in favour of the applicant can in no manner have wide repercussions as is sought to be contended on behalf of the revenue”.

However, it is worth mentioning that Senior Advocate MR Bhatt, who was representing the Deputy Commissioner of Income Tax in the case had argued that the linkage of PAN and Aadhaar “is the law of the land and has to be abided by,” and granting any relief on that front “would have wide repercussions in the entire country”.

Issues with linking PAN and Aadhaar

In 2019, The Hindu had reported that people were unable to link PAN with Aadhaar because of a name mismatch issue. PAN doesn’t allow initials, while Aadhaar does, and the two thus may have different names in each database. The software is unable to resolve the issue of different names, and this problem particularly affects those in the southern states in India, where names in some cases are long and hence abbreviated.

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