The Indian government has made the requirement of a Permanent Account Number (PAN) or Aadhaar number mandatory for deposits or withdrawals of Rs. 20 lakh or more in a fiscal year, or for creating a current account.
On May 10, 2022, the Central Board of Direct Taxes (CBDT) issued a notification in this regard called the Income–tax (Fifteenth Amendment) Rules, 2022. The new regulations will take effect from May 26, 2022.
The move is likely to aid the Income Tax Department in monitoring high-value cash transactions, deposits, and withdrawals where the individual would not otherwise pay tax on his or her income.
PAN or Aadhaar will be required for the following transactions under the new rules:
- Cash deposit or deposits aggregating to Rs 20 lakh or more in a financial year, in one or more account of a person with a banking company or a co-operative bank or a Post Office;
- Cash withdrawal or withdrawals aggregating to Rs 20 lakh or more in a financial year, in one or more account of a person with a banking company or a co-operative bank or a Post Office;
- Opening of a current account or cash credit account by a person with a banking company, a co-operative bank, or a post office.
i. Banks, post offices, and co-operative societies would be required to report deposits and withdrawals aggregating to Rs 20 lakh or more in a financial year.
- PAN is currently required for cash deposits of Rs 50,000 or more per day. With these rules, a threshold of Rs 20 lakh has been set for the entire financial year.
ii. For the purposes of authentication referred to in section 139A, an individual’s PAN or Aadhaar number, along with demographic information or biometric information, shall be submitted to the Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), or the person authorized by either with the approval of the Board.
- It also stipulates that anyone intending to make these transactions apply for a PAN at least seven days before the transaction date.
How will this benefit the tax department?
i. The prerequisite of obtaining a PAN for deposits and withdrawals would aid the government in tracking movement of cash in the financial system.
ii. These guidelines are likely to close more loopholes, in addition to the existing provision of Tax Deduction at Source (TDS) under Section 194N of the Income-tax Act, 1961.
- Section 194N was introduced in Union Budget 2019 for Tax Deduction at Source (TDS) on cash withdrawals exceeding Rs 1 crore.
- The TDS threshold limit under Section 194N was reduced to Rs 20 lakh in Budget 2020 for taxpayers who had not filed their income tax returns for the past 3 years.
iii. The interchangeable Aadhaar-PAN provision in the rules would allow a bank or financial institution to seek Aadhaar if an individual stated that he or she did not have a PAN.
- The Finance Act, 2019, made PAN and Aadhaar interchangeable. Every person who is required to provide, intimate, or quote his PAN under the Income Tax Act and who has not been assigned a PAN but has an Aadhaar number may provide, intimate, or quote his Aadhaar in lieu of a PAN.
Aadhaar is a Unique Identification number (UID) issued by the Unique Identification Authority of India (UIDAI), which is a statutory authority established under the provisions of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (“Aadhaar Act 2016”).
UIDAI was established on 12 July 2016 by the Government of India, under the Ministry of Electronics and Information Technology (MeitY).
- The Aadhaar Act 2016 has been amended by the Aadhaar and Other Laws (Amendment) Act, 2019.