Last few days to link PAN with Aadhaar; else your mutual fund SIPs will stop

The final deadline to link your PAN  (Permanent Account Number) with Aadhaar is March 31, 2023. The latest deadline comes after several postponements of earlier deadlines. But it would unwise to assume that this March 31 would be extended yet again.

Earlier, the capital market regulator Securities and Exchange Board of India (SEBI) had issued a warning that investors as well as securities market firms must ensure that investments of only those accounts where PAN  (Permanent Account Number) is mapped with Aadhaar shall be operational. SEBI has also said that to open a fresh account with any securities firm (a stock brokerage firm, a demat account, a mutual fund investment), then it is mandatory for the PAN to be linked with Aadhaar.

In 2020, the Central Board of Direct Taxes had made it mandatory for all PAN cards to be linked with Aadhaar. The last date for the same was June 30, 2021, which was then pushed back to September 30 2021 and was then fixed at March 31, 2022 .

As per recent estimates, about 20-30 lakh PAN (Permanent Account Number) holders of mutual fund (MF) units were not yet linked with Aadhaar.

If you fail to link the two, there is a penalty of Rs 10,000 under the Income-Tax act. The bigger trouble would be that your PAN itself becomes invalid or inoperative.

Invalid PAN? No investment possible

To invest in a MF, you need to get past two documentation process. One, you must comply with Know Your Client (KYC) norms. And two, you must have a valid PAN. If you PAN becomes invalid – because of non-linkage with Aadhaar – you will not be able to invest in mutual funds.

According to mutual fund transfer agency Computer Age Management Services (CAMS), there are roughly 20 lakh PAN numbers among its purview of AMCs that are still not linked to Aadhaar. This constitutes roughly 10 percent of all PANs in these fund houses, put together. And among the fund houses serviced by KFintech, some 30 percent PANs are not yet linked to Aadhaar.

As per current Income Tax Rules, it is mandatory to link Aadhaar to your PAN, on or before March 31, 2022. If the PAN is not linked with Aadhaar, the PAN shall be deemed to have become inoperative. Consequently, your KYC status will also get invalid. Fresh investments or redemptions will be prohibited. Your previous and on-going systematic investment plans (SIPs) will also be stopped. “The income-tax rules don’t specifically mention redemptions. But at the moment, the industry appears to be interpreting that even redemptions will need to stop, if an investor’s PAN is not linked with Aadhaar,” says the former head of sales of a fund house who did not wish to be quoted. Further, SEBI regulations also state that mutual funds can permit redemptions only if the KYC and PAN are valid at the time of redemption.

This official also said that banks, too, have started to inform their customers that if their PANs are not seeded with their Aadhaar numbers, their savings bank account would be frozen. Withdrawals will be restricted, but credits would be allowed.

It’s not just your mutual fund investment that will come to a halt if your PAN becomes invalid. From opening a bank account, applying for a credit or debit card, buying debentures, bonds or even investing in small-saving instruments above Rs 50,000, you require your PAN. If you fail to link your PAN and Aadhaar, most of your investment-related activities will come to a halt.

Do NRI investors need to seed PAN and Aadhaar?
Here’s where there is some confusion. Non-resident Indians (NRIs) are not mandated to have an Aadhaar card. But they have the option to apply for Aadhaar. However, an NRI must have a PAN if she wishes to continue investing in India or have a savings bank account.

Unless the Income Tax department knows you are an NRI, it will continue to require your PAN-Aadhaar linkage. And if not linked, your PAN will be become invalid. Hence, it is also important for NRIs to update their non-resident status with Income Tax on the income tax portal by logging into their accounts and updating their profile to reflect their non-resident status.

Gautam Nayak, Partner CNK & Associates, says that the PAN-Aadhaar linking rule is silent on the list of people or entities who are or should be exempt. There is a notification where NRIs, who do not have an Aadhar card, are not required to link PAN to Aadhar. It is only if an NRI has an Aadhar, that they are required to link it. A senior mutual fund industry official says that some fund houses have started advising their NRI investors to check with their chartered accountants if their income-tax returns classify them as NRIs. “That is because even if you are an NRI, the income-tax department wouldn’t know,” he says.

How do you link your PAN and Aadhaar?

Visit the new income tax portal, www.incometax.gov.in. On the home page, scroll down ‘Our services’ and click on ‘Link Aadhaar.’ Enter your PAN and Aadhaar numbers. Your name as it appears on Aadhaar and your mobile number also need to be mentioned. If your Aadhaar has only your year of birth, there is a small box to tick at the bottom of the page.

Next, click on ‘Link Aadhaar’. Enter the One-Time Password that you get on your mobile phone and your PAN and Aadhaar will get linked. There’s a good enough chance that you would have already linked your PAN and Aadhaar long ago since this requirement was first announced around 2-3 years ago. But if you are unsure, you can follow this process again. If the two are already linked, the income-tax portal will tell you that the two are linked.

Fund houses, on their own, have started to check with the National Securities Depositories Ltd (the custodian for PAN records) through their registrar and transfer agents. For those PANs not yet linked to Aadhaar, the MF industry has just about started to send out emails and letters to investors urging them to link the two.