The PAN-Aadhaar linking strategy was introduced with an aim to streamline e-filing of taxes. This strategy was expected to simplify identification and data authentication for taxpayers, making it easier to verify their ITRs. Therefore, failing to link your PAN and Aadhaar has several consequences vis-a-vis taxes. This article offers insights on how PAN-Aadhaar linking affects your taxes to help you understand why you should visit the e-filing portal today to complete this linkage.
Positive benefits of PAN-Aadhaar linking on your taxes
Linking your PAN and Aadhaar will help simplify the tax filing process. Implementation of this mandate is expected to make the e-filing process faster and much more efficient. Once your PAN and Aadhaar are linked, you can verify your identity using Aadhaar-based OTP verification. The Aadhaar-based identity verification system makes the process of filing returns more secure since the e-filing portal directly accesses your data from the UIDAI. Moreover, PAN-Aadhaar linkage also allows automatic pre-filling of essential details like your name, date of birth, etc. directly into the ITR return forms. While this reduces manual labour and saves time, it also reduces the possibility of errors.
Linking your PAN and Aadhaar also prevents misuse of duplicate or fake PAN Cards, ensuring that tax liabilities are tied to the right individual. Apart from eliminating hassles for the taxpayer, this arrangement will also help curb the costs incurred by the IT department in various areas of compliance and execution like receiving hard copy returns and then reconciling them with the e-filed returns.
Tax-related consequences of not linking your PAN and Aadhaar
Inability to file income tax returns
Failure to link these two documents results in an inoperative PAN. Therefore, if your PAN and Aadhaar are not linked, you cannot file your ITR on the e-filing portal. The Income Tax Department will not process ITRs submitted without this linkage. Failing to file your ITR on time can result in penalties and other legal complications.
Higher TDS/TCS rates
TDS applicable under Section 206AA will be charged at a higher rate if your PAN is not linked to your Aadhaar. For instance, if a 10% TDS is applicable on your professional fees u/s 194J, failing to provide an active PAN will result in a higher TDS rate of 20%. Similarly, TCS rates will also be higher for taxpayers without PAN-Aadhaar linking.
No tax refunds
As mentioned earlier, the IT Department will not process ITRs without an active PAN. This extends to refunds as well. You cannot claim pending income tax refunds without linking your PAN and Aadhaar. This can disrupt your financial planning, especially if you rely on refunds to fund your annual cash flow.
Loss of TDS/TCS credits
TDS/TCS collected during the fiscal year are listed on Form 26AS. These credits can be used by the taxpayer to offset their total tax liability. In other words, you can subtract the tax already paid to the government from your total tax liability and pay the difference. However, if your PAN is inoperative, TDS/TCS credits won’t be available. This can result in excess tax payments and a greater tax liability build-up.
Impact beyond taxes
The implications of an inoperative PAN extend beyond taxes. Failing to link your PAN and Aadhaar will restrict you from conducting the following transactions:
- Invest in the securities market.
- Open time deposits with banks and NBFCs exceeding Rs. 50,000 or aggregating to over Rs. 5 Lakhs in a fiscal year.
- Opening a Demat account.
- Applying for loans and credit cards.
In fact, this can also restrict you from making high-value transactions on online marketplaces or offline stores as well.
Conclusion
In a nutshell, linking your PAN and Aadhaar has a far-reaching impact on your taxes. While linking your PAN and Aadhaar helps streamline the e-filing process through Aadhaar-based OTP verification, failing to do so can prevent you from filing returns, claiming tax credits, and can even result in higher TCS/TDS rates. To avoid such adverse consequences, it’s best to link your PAN and Aadhaar at the earliest. If you missed the 30th June 2023 deadline, you can complete the linking through the e-filing portal after payment of the penalty charge of Rs 1,000.