PAN to become inoperative on failure to link with Aadhaar: Rule 114AAA

The CBDT has notified new Rule 114AAA to provide that the PAN of a person shall become inoperative if he fails to intimate his Aadhaar number u/s 139AA(2) by 31st March, 2020. However, where such person intimates his Aadhaar number after March 31^st 2020, his PAN shall become operative again from the date of intimation of Aadhaar number. Further the Government has extended the said deadline of 31^st March 2020 to 30^th June 2020 for linking Aadhar with PAN as part of relief measures announced due to Covid-19.

Hence it is to be noted that through this new Rule 114AAA the PAN of the individuals who are required to quote Aadhar would become inoperative if it is not linked on or before 30^th June 2020. Please click here to access the relevant rule for reference. Rule 114AAA_Notification

Sub-rule (2) of the new rule further goes on to provide that if any PAN has become inoperative due to non- linking the same with Aadhar then it shall be deemed that for the purposes of Income tax Act, the same has not been furnished, intimated or quoted wherever it is required to be furnished, intimated or quoted and all the consequences of the act for not furnishing, intimating or quoting the PAN will apply.

In this regard we wish to highlight that section 206AA of the Income Tax Act, requires every person to furnish PAN to avoid the tax deduction at penalty rate of 20%. As per above rule 114AAA, if the person does not link the Aadhar with PAN, then the PAN will become inoperative and will not be deemed to have been furnished wherever there is requirement to furnishing the PAN which will also include Section 206AA, Hence the provisions of Section 206AA will trigger in all the cases where any vendor or employee has  not linked the Aadhar with PAN and withholding taxes will be applicable at the rate of 20%.

Keeping this in view, it is to be noted that everyone should link their Aadhar with PAN to ensure that withholding taxes are being held at the concessional rate of tax rather than 20%. In particular, all the business entities who are liable to withhold taxes are urged to take care of the following

• In case of employees to get their Aadhar linking done in order to ensure that the taxes are withheld on their salaries at slab rate rather than at 20%.
• In case of other individual vendors to get their Aadhar linking done so that higher rate of withholding taxes does not trigger as per Section 206AA at 20% or further higher rate as may be prescribed.