Tens of thousands of people may not be able to file income tax returns for the coming financial year as they are unable to link their Aadhaar to their PANs, for no fault of theirs.

The Point of Mismatch:

• Since a person’s identity is authenticated biometrically, Aadhaar can allow initials in the name.
• On the other hand, PAN is based on an old system that will not accept initials even if they are entered.
• A large number of people, especially in south India, are not being able to link the two because of the name mismatch.

Court’s Stand:

• According to the Supreme Court’s judgement passed on 9th June 2017, anyone who holds an Aadhaar card has to link it to his/her PANs and mention the same in the tax returns.
• The government has set July 1, 2017 as the deadline for linking Aadhaar card with the PAN card.
• However, those who do not have Aadhaar can e-file tax returns without the same for FY 2016-17.
• Non-resident Indians (NRIs), however, are not required to quote Aadhaar number while filing income tax returns back home.
• The government has also mandated that bank accounts be linked with PAN by June 30, 2017.

What will happen if one does not link Aadhaar with the PAN?

• Failing to link Aadhaar and PAN may lead to invalidation of one’s PAN card.
• If that happens, the PAN card of the concerned will cease to serve as an identity proof, debarring him/her from transactions that cannot be carried out without quoting PAN.

Significance of PAN-Aadhaar Linkage

• The interlinking of PAN card, Aadhaar and bank accounts, indicates that the government will be able to keep a track of one’s financial transactions. This is expected to result in more transparency in financial transactions across the country.
• With this linkage, the government is also trying to solve the problem of people having multiple PAN cards and filing tax returns with those. How? As Aadhaar is based on biometrics, the chances of duplication are much less as compared to PAN, which is not based on biometrics.
• The number of tax-payers in the country is very low. The government intends to check tax evaders with PAN-Aadhaar linkage.

Arguments against PAN-Aadhaar Linkage

• The petitioners before the court had argued that the provision, which makes it obligatory on individuals filing income tax returns to link their permanent account numbers (PAN) to their Aadhaar, was unconstitutional as it, among other things, infringed a number of fundamental rights.
• The mandatory linking of Aadhaar to PAN under the newly-included Section 139AA of the Income Tax Act is a “direct invasion” by the state into the citizens’ right to make free, voluntary and informed consent.
• There is complete collision Aadhaar Act and Section 139AA of the Income Tax Act, which provides for mandatory quoting for the Aadhaar. However, UIDAI clearly states that it is voluntary.

Arguments in favour

The government had argued that Section 139 AA was enacted by the Parliament to ensure that fake PAN cards are removed from the system and Aadhaar was the “most effective” way to do so.

Supreme Court’s Verdict and its Implications

• Supreme Court of India had upheld the constitutional validity of Section 139AA of Income Tax Act which made mandatory linkage of IT returns with Aadhaar.
• The Court made it clear that those who don’t have Aadhaar need not apply for it for the purpose of filing IT returns.
• The Supreme Court held that the parliament was competent to enact section 139AA of the IT Act as the said interim orders relied upon by the petitioners were passed when the Aadhaar Act was not even enacted.
• The court also held that the Aadhaar Act and the law contained in section 139AA of the IT Act deal with two different situations and operate in different fields. This is an alarming statement as it gives the government a much-needed way out from the interim orders of the court. The government can, now, amend any central statute, including non-welfare schemes, and insert a provision making it mandatory to quote Aadhaar number while maintaining the voluntary nature in the parent Aadhaar Act.
• The court further held that the interim orders were passed in the petitions where Aadhaar scheme was put forward as an executive measure. The court also stated that the said orders were not passed in a case where the court was dealing with a statute passed by the parliament. By creating an artificial distinction between the executive and legislative actions of the government, validated the government’s overt violation of Supreme Court orders.

PAN

• PAN is a 10-digit alphanumeric number used for keeping a track of financial transactions
• It is issued to all judicial entities identifiable under the Indian Income Tax Act, 1961.

It is issued by the Indian Income Tax Department under the supervision of the Central Board for Direct Taxes (CBDT) and it also serves as an important proof of identification

Section 139AA of the Income Tax Act

• It was introduced by the Finance Act of 2017.
• Section 139AA(1) of the Income Tax Act provides for mandatory quoting of Aadhaar/Enrolment ID of Aadhaar application form, for filing of return of income and for making an application for allotment of PAN with effect from 1st July, 2017.
• Section 139AA(2) of the Income Tax Act provides that every person who has been allotted PAN as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar, shall intimate his Aadhaar on or before a date to be notified by the Central Government.

The proviso to section 139AA (2) provides that in case of non-intimation of Aadhaar, the PAN allotted to the person shall be deemed to be invalid from a date to be notified by the Central Government.