Why PAN becomes inoperative - Sinewave Computer Services Pvt Ltd

PAN i.e. Permanent Account Number is a unique ten-character alphanumeric identifier number issued by the Income Tax Department to every individual who applies for the same upon verification of documents. PAN is used to keep a track of financial transactions done by an Individual or an entity.

In recent years, government has also mandated Indian citizens to get an Aadhar number which is a Unique identification number of every Indian Citizen. Government has brought down a mandate to link PAN number with Aadhar number in order to bring transparency in all the transactions done by an individual. Aadhar number is issued only to individuals.

PAN is a unique identification number issued to individuals and businesses for income tax and all other financial purposes. However, the Aadhaar number is a 12-digit unique identification number issued for all residents.

You will not be able to carry any financial transactions or income tax return filing processes if the PAN issued to you becomes inoperative.

Why does PAN become inoperative?

There are several reasons why a PAN becomes inoperative. Let us look into the reasons:

PAN card will be inoperative if an individual has failed to link the PAN with Aadhaar. According to Section 139AA(2) read with Rule 114AAA, failure to link Aadhaar with PAN results in the PAN becoming inoperative.
If an individual holds more than one PAN, IT department will deactivate rest of the PANs.
In case of NRI's or OCI's, if they possess an Aadhaar card and has failed to link it with PAN.

Clarification of Income Tax Department on PAN of NRIs or OCIs:

For NRIs:-

ITD has mapped the residential status of NRIs in case they have filed the ITR in any of the last 3 AYs or they have intimated their residential status to the Jurisdictional Assessing Officer (JAO). The PANs have been rendered inoperative, in case any one of the above-mentioned criteria is not met.

The NRIs whose PANs are inoperative are requested to intimate their residential status to their respective JAO along with supporting documents with a request to update their residential status in the PAN database.

For OCIs:-

The PANs of OCIs/foreign citizens, who may have applied for PAN under resident status and have not corrected/updated their residential status to the Jurisdictional Assessing Officer (JAO) or have not filed ITR in any of the last 3 AYs, have been rendered inoperative.

The OCIs/foreign citizens are requested to intimate their residential status to their respective JAO along with supporting documents with a request to update their residential status in the PAN database.

What are the consequences of a PAN becoming inoperative?

PAN will become inoperative if PAN is not linked with Aadhaar till 30 June 2023, as 30^th June 2023 was last date to link PAN with Aadhar, and shall face the following consequences as a result of PAN becoming inoperative:

Refund of any amount of income tax will not be released and kept on hold.
Any interest on such refund shall not be payable to him till the date it becomes operative.
TDS is deducted at a higher rate than a rate at which it should have been deducted.
TCS is deducted at a higher rate than a rate at which it should have been deducted.
Income tax returns will not be processed.
Issues with 15G/15H declarations for nil TDS.
Problems in bank account opening.
No purchase of mutual funds/shares/deposits etc will be allowed.
Sale or purchase of goods or services by any person more than Rs.2,00,000 per transaction will face restrictions.
All bank transactions exceeding Rs.10,000 will face certain restrictions.

It is clarified that an inoperative PAN is not an inactive PAN. One may file the Income Tax Return (ITR), irrespective of PAN becoming inoperative.

How to make PAN operative again?

Linking of PAN with Aadhar will make the inoperative PAN operative again. However, a penalty of Rs.1,000 will be payable for making such PAN inoperative again.

Conclusion:
PAN is a very important identification number required for financial and tax purposes. The instances which makes a PAN inoperative shall be excluded at all costs otherwise consequences can be tedious for the taxpayer as it will deny the taxpayer its refund amount or will hold income tax processing of the taxpayer etc.

CA Chinmay Shirish Agate

Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.

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