PAN Aadhaar link penalty

The Income Tax Department has advised taxpayers to link their PAN with Aadhaar by May 31, 2024, to prevent higher rates of tax deducted at source (TDS) or tax collected at source (TCS) and penalties.
PAN Aadhaar link penalty
3 min
04-July-2024

The Permanent Account Number (PAN) and Aadhaar cards have become crucial identification documents for Indian citizens. The PAN card and its number are generally used in financial transactions, while the Aadhaar card is most commonly used to prove an Indian citizen's identity. The Indian government, in its bid to create a transparent financial and general identity structure, has made it mandatory for Indian citizens to link their PAN cards to their Aadhaar cards.

Although the Indian government has extended this deadline many times in the past, this time, it has announced a PAN-Aadhaar link penalty if Indian citizens and other financial entities fail to link their PAN to their Aadhaar card. This article will help you learn about the Aadhaar-PAN link penalty and how you can avoid it.

Penalty for non-linking of PAN with Aadhaar card

The CBDT has set the PAN-Aadhaar link penalty at Rs. 1,000 as a late fee if individuals link PAN and Aadhaar after May 31st, 2024. Furthermore, it has also added a penalty of higher TDS/TCS collection. Individuals and entities who haven’t linked their PAN and Aadhaar cards must pay a higher TDS/TCS. If an individual is salaried, the employer is liable to deduct a higher TDS and deposit it with the Indian government. Furthermore, the PAN card will become inoperative if it hasn’t been linked with the Aadhaar card after May 31st, 2024.

What will happen if Aadhaar and PAN are not linked?

If you fail to link your Aadhaar card and PAN card by May 31st, 2024, here are the consequences you may face:

  • TDS/TCS will be deducted/collected at a higher rate.
  • The PAN card will become inoperative after May 31st, 2024.
  • Taxpayers will not be able to file their Income Tax Returns.
  • The Income Tax Department will not process any pending returns, and taxpayers will not receive the pending refunds.
  • Taxpayers will not be able to see their TCS/TDS certificates, and TDS/TCS credit will not be available on Form 26AS.
  • Taxpayers will not be able to submit Form 15G/15H to avoid TDS payments.
  • Individuals will not be able to use their PAN cards. Most financial activities will become unavailable, such as opening a bank account, purchasing mutual fund units, and bank transactions exceeding Rs. 10,000.

Circular on PAN-Aadhaar linking

The PAN and Aadhaar linking process is being supervised by the Central Board of Direct Taxes (CBDT). It has announced a PAN-Aadhaar link penalty for individuals and entities failing to link their PAN to their Aadhaar cards. As per CBDT, individuals and entities will be charged at a higher Tax Deducted at Source (TDS)/ Tax Collected at Source (TCS) rate if they fail to link their PAN card to their Aadhaar card by May 31st, 2024. It means that if you have not linked your PAN card to your Aadhaar card, you or your employer (in the case of salaried individuals) will be liable to deduct a higher TDS/TCS under sections 206AA and 206CC of the Income Tax Act, 1961.

This is because the Indian government announced that a PAN card that is not linked with an Aadhaar card will become inoperative after the last date. However, even after the last date, if you haven’t linked your PAN and Aadhaar, you can apply to link them after paying the Aadhaar-PAN link penalty.

The CBDT issued a circular on April 23rd, 2024, to resolve the complaints of deductors and collectors who had previously deducted and collected TDS/TCS at a regular rate. According to them, they received tax notices of "short-deduction/collection" of TDS/TCS due to such transactions. However, as the PAN had become inoperative of the person they deducted or collected the TDS/TCS from since April 1, 2023, they were required to deduct the TDS/TCS at a higher rate.

Addressing the issue, the CBDT issued a circular stating that for transactions entered into up to 31st March 2023—and in cases where PAN becomes operative on or before 31st May 2024 (as a result of PAN linkage with Aadhaar), the deductor or collector has no liability to deduct or collect tax u/s 206AA or 206CC.

Also read about: How to check mutual fund status with folio number

Last date to link PAN with Aadhaar

The Indian government and the Central Board of Direct Taxes (CBDT) had set May 31st, 2024, as the last date to link the PAN and the Adhaar card. On June 1st, the PAN card will become inoperative, and the individuals or entities will be liable to pay the PAN-Aadhaar link penalty under sections 206AA and 206CC of the Income Tax Act, 1961.

Earlier, the date was set as March 31st, 2023, but it was extended to May 31st, 2024, to give Indian citizens and other entities more time.

How to pay late fee for Aadhaar-PAN linking?

Here is how you can pay the Aadhaar-PAN link penalty:

  • Visit the official income tax filing website of the Indian government and navigate to the Aadhaar-PAN linking section.
  • Submit the PAN-Aadhaar link request by selecting challan number ITNS 280.
  • Go to the applicable tax mentioned under Major Head 0021 (Income Tax Other than Companies) and Minor Head 500 (Other Receipts).
  • Select your preferred mode of payment and enter the required details, such as PAN number, address, and assessment year.
  • Enter the show captcha and pay the PAN-Aadhaar link penalty.
  • You will receive a receipt for the payment, and you can begin the process of linking your PAN and Aadhaar to avoid further consequences.

Who falls under the exempt category for PAN-Aadhaar linking?

The Indian government has exempted certain individuals from linking their PAN and Aadhaar cards. These individuals are:

  • Non-Resident Indians (NRIs): Individuals classified as NRIs per the Income Tax Act do not need to link their PAN with Aadhaar.
  • Individuals not citizens of India: Foreign nationals, even if they hold a PAN, are exempt from linking it with Aadhaar.
  • Super senior citizens: Individuals aged 80 years or above at any time during the previous year are exempt.
  • Residents of Assam, Meghalaya, and Jammu & Kashmir: Individuals residing in these states are currently exempt from the PAN-Aadhaar linking requirement.

These exemptions are subject to change based on new regulations or government notifications, so it’s advisable to check for the most current information.

Also read about: How to do mutual funds KYC

Importance of linking PAN with Aadhaar card

Here is the importance of linking your PAN with your Aadhaar card:

1. Avoiding PAN deactivation

Failure to link PAN with Aadhaar can result in the deactivation of your PAN. This means you cannot perform financial transactions that require a PAN number, such as opening a bank account, investing in securities, or buying property.

2. Filing income tax returns

A PAN card is mandatory to file ITRs and to get TDS/TCS refunds. Now, the Indian government has made it mandatory to link PAN with Aadhaar to file income tax returns.

3. Access to government services

Linking PAN with Aadhaar is often required to access various government services and subsidies. Thus, PAN-Aadhaar linking is vital to access such services and subsidies.

4. Reducing tax evasion

The Indian government can better monitor and track high-value transactions for citizens who have linked their PAN with Aadhaar. This can reduce tax evasion and ensure a transparent tax system.

5. Easy tax compliance

Linking PAN with Aadhaar allows for easier and more efficient tax compliance. It simplifies the process of issuing refunds, processing ITRs, and tracking financial transactions.

Consequences of not linking PAN with Aadhaar card

As mentioned above, there are many consequences you may face if you haven’t linked your PAN with your Aadhaar card. The most prominent of all the consequences is the Aadhaar-PAN link penalty, which is levied by charging TDS/TCS at a higher rate and a late fee of Rs. 1,000. Once you fail to link your PAN and Aadhaar by May 31st, 2024, the PAN becomes inoperative, and you cannot execute most financial transactions. Furthermore, you cannot file your income tax returns without linking your PAN with Aadhaar. Even if you have filed your ITR before PAN becomes inoperative, you won’t be able to claim any pending tax refunds.

How to activate an inoperative PAN card and link it with an Aadhaar card?

If you have failed to link your PAN with Aadhaar and your PAN has become inoperative, you can easily activate it again by following the below steps:

Step 1: Visit the income tax e-filing portal.

Step 2: Navigate to the ‘Quick Links’ tab and click the ‘e-pay Tax’ option.

Step 3: Under ‘PAN/TAN,’ enter your PAN number and enter it again under the ‘Confirm PAN/TAN’ column. Enter your mobile number and click on the ‘Continue’ button.

Step 4: Enter the OTP received on your mobile number, and you will be redirected to a new e-pay tax page. Click the ‘Continue’ button here.

Step 5: Select ‘2025-26’ as the assessment year and select ‘Other Receipts (500)’ under the ‘Type of Payment (Minor Head). Select ‘Fee for delay in linking PAN with Aadhaar’ and click the ‘Continue’ button.

Step 6: You will see the PAN-Aadhaar link penalty amount under the ‘Others’ tab. Click on the ‘Continue’ button and pay the applicable fee.

Also read about: Income tax slab for FY 24-25

Conclusion

The Indian government has made linking PAN with Aadhaar mandatory, and the last date has been set as May 31st, 2024. As both PAN and Aadhaar cards are vital documents, it is important that you link them before the due date. If you fail to do so, you may be liable to pay the Aadhaar-PAN link penalty, and your PAN card will become inoperative, forcing you to lose most of your financial privileges. If you haven’t linked your PAN with an Aadhaar card, you can follow the above process to pay the PAN-Aadhaar link penalty and link them as soon as possible.

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Frequently asked questions

Is there any penalty for linking PAN with Aadhaar?
No, there is no penalty for linking your PAN with Aadhaar, but you may face a higher TDS/TCS deduction if you fail to link your PAN with Aadhaar by May 31st, 2024. Your PAN card will also become inoperative, and you will have to pay Rs. 1,000 as a late fee, and the PAN must be activated again during the linking process.
How much TDS is deducted if PAN is not linked with Aadhaar?
A higher TDS rate of 20% is applicable if you have not linked your PAN with your Aadhaar.
How much will it cost to link Aadhaar with PAN?
While linking your PAN to Aadhaar is free, you may have to pay Rs. 1,000 as a late fee if you do so after May 31st, 2024.
What to do if PAN and Aadhaar are not linked after payment?
If the amount has been deducted and you haven’t received linking confirmation, you can contact customer care of the Income Tax Department or visit your nearest PAN service center.
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The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

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