Excl: PAN may be phased out in future as govt makes Aadhaar necessary for tax filing

The government’s move to make Aadhaar compulsory for filing income tax returns or applying for a permanent account number (PAN) from 2017-18 may well be a part of an ambitious plan to eventually replace PAN with Aadhaar as the sole warehouse of individual tax information.

Over the last two years, the Income Tax Department has hastened the pace of seeding PAN with the unique identity number Aadhaar that contains citizens' biometric and other details.

A pilot project to integrate PAN cards with Aadhaar data was first undertaken in 2012.

A PAN number, besides serving as a unique 10-digit alpha numeric identity for citizens, has also become mandatory in a host of transactions. Aadhaar uses fingerprints and iris scans, and integrating this with tax return data should help identify duplicate PAN holders and tax dodgers.

"The possibility of phasing out PAN in the future exists," a senior government official told Moneycontrol.

"The government, however, has no proposal to scrap it (PAN) immediately," the official said.

In July 2015 the Central Board of Direct Tax (CBDT) introduced the Electronic Verification Code (EVC), allowing individuals the option of linking Aadhaar details to their income tax returns.

Previously, after e-filling the ITR, the taxpayer had to post the signed copy of ITR-V to Centralised Processing Centre (CPC) in Bangalore.

Since July 2015 the income tax (I-T) department has started linking of PAN with the Aadhaar Card, eliminating the procedure of sending a physical copy of the I-T return to CPC, Bangalore.

Last year, the tax department gave taxpayers the option to disclose their Aadhaar number in the income tax return form. This is going to be made mandatory from the next assessment year.

The tax department is so far learnt to have seeded about 10 million Aadhaar numbers into the PAN database.

The move to make quoting Aadhaar compulsory in I-T returns is expected to significantly hasten this seeding process, and allow a complete “360 degree profiling” of all taxpaying individuals to help detect evasion and tax fraud.

The income tax department has been using technology to match personal details to ensure that duplicate PANs are not issued. However, some taxpayers managed to get more than one PAN by making some changes in their personal information at the time of submission of the PAN application.

“Aadhaar has been made mandatory for tax returns. There have been instances of a single (individual) holding 5 PAN cards to evade tax.  Nearly, 98 percent adults in India have Aadhaar cards,” Finance Minister Arun Jaitley said in the Lok Sabha on Wednesday while replying to the debate on the Finance Bill 2017.

So far, about 250 million PAN cards have been issued, but only about 40 million individuals file income tax returns in India, a sign that millions may have been evading taxes despite holding PAN cards.

Furnishing PAN is now mandatory for cash transactions such as hotel or foreign travel bills exceeding Rs 50,000, purchase of jewellery above Rs 2 lakh in cash or through card, purchase of immovable property of over Rs 10 lakh, term deposits exceeding Rs 50,000 at one go or Rs 5 lakh in a year with banks, post offices and non-banking financial companies (NBFCs).