From an Indian tax legislation perspective, July 1, 2017 should be a historic date as the revolutionary and the most-debated GST finally came into force. It’s on the same day that another most debated tax provision also came in to effect. Effective July 1, 2017, quoting Aadhaar (Aadhaar number / enrolment ID) has become mandatory for income tax return filing and for applying for Permanent Account Number (PAN). The central government has notified that the requirement of quoting Aadhaar for income tax returns filing and application for PAN shall not apply to an individual who is residing in the states of Assam, J&K, and Meghalaya; a non-resident as per the Income tax Act, 1961; of the age of 80 years or more at any time during the previous year; not a citizen of India.
Linking Aadhaar & PAN
All persons who are allotted a PAN as on July 1, 2017 and eligible for Aadhaar, would need to intimate the Aadhaar number to the prescribed authority in prescribed form and manner. Recently, the CBDT has introduced intimation procedure through SMS, in-person visit to designated PAN service centres and online facility on the portals of PAN service provider. This is in addition to the facility available on the income-tax portal for linking of PAN with Aadhaar. Failing to comply with this requirement could mean that the PAN shall be deemed to be invalid. However, the provision to make the PAN invalid is currently on hold until announcement of an extended time-frame.
Current challenges with returns filing
From an income tax returns filing perspective, there seem to be challenges in determining persons eligible for Aadhaar and individuals who are excluded from the requirement of quoting Aadhaar. While the criteria such as residing state, residential status and age could be directly determined basis the inputs in the tax return, when it comes to citizenship, in the absence of specific field in the income tax returns there are challenges faced by certain individuals.
Challenges faced by foreign citizens
The understanding is that the PAN database is being used to validate citizenship of the individual. Before April 2012, there was a common PAN application form applicable for both Indian and foreign citizens with specific field to capture citizenship. However, erstwhile Indian citizens who may have applied for PAN long back while they were Indian citizens could continue to be reflected as Indian citizens. In the lack of specific requirement and process to get the citizenship status amended, the PAN database could be reflecting erroneous status. Also, there is no visibility for the individual as to the current citizenship which is reflected in the PAN database. Accordingly, in the absence of Aadhaar number / enrolment ID, foreign citizens who are erroneously classified as Indian citizens in the PAN database would be unable to file their tax return online.
Added to this, individuals who are challenged with the erroneous citizenship classification in the PAN database are currently being directed to contact their jurisdictional income tax officer to get their PAN database corrected. Given that the tax returns filing deadline is round the corner, this is proving to be a major bottleneck for the affected foreign nationals in getting their India income tax returns filed in a timely manner.
Challenges faced by Indian citizens
Indian citizens who qualify as resident and ordinarily resident in India (ROR) but who do not qualify for Aadhaar enrolment are also facing challenges in filing their tax returns without Aadhaar. Consider an individual who had left India for employment purpose post November 2016 and is not enrolled for Aadhaar. As per the income-tax provisions, the individual would qualify as ROR in India for FY 2016-17. However, as per Aadhaar Act, the individual may not be eligible for Aadhaar enrolment as the physical stay in India was less than 182 days in aggregate during the 12-month period immediately preceding the date of application. Thus, technically such individuals are not required to quote Aadhaar for their returns filing. However, the online tax returns filing utility is currently restricting these individuals from filing their tax returns without quoting Aadhaar.
Hopefully, the CBDT would take appropriate measures to ensure that the nationality as per PAN database is visible to the respective individuals and a standardised / simple option is provided to get the same corrected, if required. Importantly, the immediate requirement would be to provide an alternative to capture the current citizenship status and Aadhaar eligibility criteria as part of the returns filing process to fully address the current challenges and facilitate ease of filing of income tax returns by individuals.
Suresh Kumar is director Deloitte Haskins and Sells LLP. With inputs from Pallavi Dhamecha, manager, Deloitte Haskins and Sells LLP