The government has been promoting the use of Aadhaar for a host of services, including passport application, booking concessional railway tickets, pensions and LPG connection, etc. To take it to the next level, in the recent amendments to the Finance Bill, the government on March 21 proposed to make the Aadhaar card mandatory for PAN application as well as for filing income-tax returns. This move will be applicable from July 1. Earlier, the Aadhaar card was optional for both. The above proposal was a part of the 40 amendments proposed in the legislation.
According to this amendment, existing taxpayers will have to link their PAN cards with Aadhaar numbers by a certain date, to be specified later. And new PAN applicants will be required to declare their Aadhaar numbers in the PAN application itself.
Now Aadhaar has become mandatory for tax filing as well for existing taxpayers—who don’t have Aadhaar allotted in their name will have to enrol themselves immediately. Meanwhile, they can file their tax returns using this enrolment number until they get the Aadhaar allotted in their names. Those who fail to disclose their Aadhaar number, their PAN and income-tax return will be deemed invalid.
The only challenge is for foreigners and non-resident Indians who have to file tax returns in India for any reason, or are required to quote the PAN in respect of certain financial transactions, in case if it is deemed invalid due to non-linking to Aadhaar. However, the government is expected to provide relief in reasonable cases, by putting certain exceptions for this mandatory Aadhaar rule. This decision of the government is going to have a huge impact across the socio-economic spectrum.
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Earlier, the Supreme Court had stated in its judgment that Aadhaar should not be mandatory for availing direct benefits transfer of domestic LPG subsidy or for any other government scheme. However, in the aftermath of this Bill becoming a law, one will be left with no option than to follow it.
The Aadhaar, or the 12-digit Unique ID, is backed by biometrics including fingerprints and iris scans stored in a central repository. The government is of the view that since Aadhaar contains biometric details, hence the possibilities of misuse can be minimised.
The government intends to minimise tax evasion and fraud. This move will serve the purpose by identifying tax evaders and people with multiple PAN cards. In the past, there were cases where the same person filed taxes against multiple PAN cards. The government is of the opinion that linking Aadhaar to PAN and income-tax returns will cater to the need of the hour, i.e. strengthening the rules governing cash transactions after demonetisation.
If Aadhaar gets linked to PAN, the tax department will be successful in obtaining all the information related to taxpayers’ financial transactions and belongings. This will also help the government to relate a particular transaction to a real identifiable person, ultimately eliminating benami transactions. The tax department will compare those transactions with the income reported on the tax return of the identified person, and in the instance of any discrepancy, it can immediately be furnished for further investigation. Therefore, it will provide a boost to the government’s drive against black money.
As per the mission statement of the UIDAI (Unique Identification Authority of India), Aadhaar was introduced for providing every resident Indian with a unique identity. The penetration of Aadhaar has been much higher—close to 111 crore—compared to PAN card holders (only 25 crore). The current government definitely wants to leverage this for unearthing black money, tracing benami transactions and increasing the overall base of taxpayers.
Slowly, the government is trying to give Aadhaar the status similar to the Social Security number in the US. Therefore, possibilities are that Aadhaar may totally replace PAN and taxpayers may be able to file income-tax returns using just the Aadhaar card. Apart from this, the other possibility is that a majority of your tax-related details will be auto populated in your tax-return form, and you may just be required to either approve or deny it. However, this is a long time bet.
Now, with this move, many people have raised questions about the privacy and security of the confidential personal information, as private agencies handle the same. In this regard, the UIDAI has already clarified that each device that uses Aadhaar authentication will have to follow its new encryption standards starting June 1. It effectively means adding another layer of security to the hardware. In addition, the UIDAI has come out with new specifications and has asked manufacturers and vendors to go for Standardisation, Testing and Quality Certification (STQC) certification in accordance with the new standards. It also mandated that all existing devices should be upgraded according to new norms.
The most important question that arises is, whether we should undermine this move just on the ground that it may raise issues relating to privacy and security of confidential personal information?
The author, Chetan Chandak is head of tax research, H&R Block (India), the income-tax filing company