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Why the PAN of some NRIs have turned inoperable

The message was rather abrupt: “Your PAN is inoperative.” The London-based NRI (non-resident Indian) was shocked to see this message flash on his laptop screen recently when he sat down to file his income tax returns (ITR) for the current year. His PAN had become inoperable since it was not linked with Aadhar, the 12-digit unique ID number. And the date for mandatorily linking both was 30 June. The NRI, who did not want to be identified, does not have Aadhaar. Neither does his wife.

But, here’s the surprising part. “Unlike me, my wife was able to submit her ITR successfully. It makes no sense because she, too, hasn’t linked her PAN with Aadhaar. Besides, getting an Aadhaar is optional for NRIs, so linking them should also be optional,” he said.

Other NRIs, too, are facing a similar crisis. The problem, however, is not related to their Aadhaar being linked with PAN. Rather, it stems from their residential status that they had hitherto declared in their PAN applications and found in the I-T department records.

“The IT department has an international tax ward that deals with non-resident taxpayers. Unless NRIs register themselves as a non-resident, they continue to be identified as a resident per the PAN records. Such NRIs who fall in resident jurisdiction and did not link Aadhaar with PAN are now seeing their PAN getting inoperative,” said Prakash Hegde, chartered accountant, Acer Tax & Corporate Services LLP.

This is akin to NRIS being asked by banks to convert their regular savings account to NRE or NRO account after they attain the non-resident status. Similarly, the change in status has to be registered with mutual fund (MF) companies, in demat accounts and with stock brokers, wherever applicable.

However, in most cases, NRIs don’t separately get their jurisdiction changed with the I-T department as they disclose the non-resident status while filing their ITR, which should suffice.

“This is erroneous on the tax department’s part as these NRIS have been filing ITR under non-resident status for many years. The I-T department should have mapped their residential status as per their ITR and not wait for them to file a separate application. Or, the department should have educated the NRIS about PAN-Aadhaar linking and thereby averted this mess,” said Hegde. “In none of the correspondence that the department has been sending these past few months regarding PAN-Aadhaar, it was specified that NRIS have to get their PAN database changed. Also, getting PAN database changed every time you become resident to NR or vice versa is not a practical approach as some assessee’s status is changed frequently,” said Deepak Kakkar, a Delhi-based chartered accountant and senior manager, Jaikumar Tejwani & Co. LLP.

Do note that residential status in your profile on the online I-T portal can be easily updated but that doesn’t change the residential status in the I-T department’s records.

Unlike residents, not having an Aadhaar card has no bearing on tax filing for an NRI. In fact, the government has exempted NRIs from stating Aadhaar in their ITR, said Kakkar. “The provisions of section 139AA, which mandates quoting of Aadhaar in ITR and PAN application, do not apply to NRIS who do not possess the Aadhaar. They were exempted from this vide notification No. 37/2017,” he said.

It should be noted that only those NRIS who do not have the Aadhaar are exempted. “If the NRI does have an Aadhaar, then the exemption does not apply and he will be required to link it with his PAN,” said Neeraj Agarwala, Partner, Nangia Andersen India.

The Impact

An inoperative PAN is bad news for NRIs as they can’t do a host of financial transactions, including investing in SIPs (systematic investment plans) or opting for redemption in MFs, payment of life insurance premium, and purchase of bonds and listed and unlisted shares.

“The RTA (Registrar and Transfer Agents), on behalf of the asset management company (AMC), checks the online status of the PAN at the time of processing the transaction and if its status is found to be inoperative, SIP or redemption will not get processed,” said Kashmira Kalwachwala, headinvestor services, Tata Mutual Fund.

Abdulla Chaudhari, head-investor services, Edelweiss AMC, concurred and added “Currently, the AMC can only see the status of the PAN as operative or not, on the basis of which they are processing transactions.”

NRIs also can’t file their tax returns. “Any pending refunds owed to them will also not be processed until the issue with their inoperative PAN is resolved,” said Agarwala. The London-based sexagenarian couple, mentioned earlier, has to file the ITR to get a refund of the 20% TDS (tax deducted at source) they are entitled to after selling a property held jointly in Chennai last year. “We will get half the refund amount as my wife has filed her ITR successfully. But it doesn’t look like we will get a resolution in time to claim the remaining half,” the husband said.

Another major impact of the inoperative PAN would be in the form of TDS on various payments made by NRIs in India. NRIS have the option to get TDS lowered from 20-30% (as applicable in different cases) if they get a lower deduction certificate from the tax authorities by furnishing their PAN. They can no longer exercise this option with an inoperative PAN.

What can NRIs do

NRIS facing this issue have two options-get their jurisdiction changed to non-resident ward or enroll for Aadhaar and link it with PAN.

For the first option, they have to file an application with the IT office in their domestic jurisdiction along with copies their stay in India over the past few of their passports and details about years. “The income tax profile of the jurisdiction in which he/she falls and NRI taxpayer will have details of the email ID of the concerned tax officer. They can send the application and other documents to this email ID,” said Hegde. Once the residential status is assessing officer (AO).

“It is important to inform the relevant AO that linking is no longer required for them. Based on their request, the AO will be able to reactivate the PAN. It i important to note that the process of making the PAN operative may take up to 30 days. it is crucial to take prompt action to make the PAN operative in order to file the income tax return within the specified deadline,” said deadline (provided it is not extended) Agarwala. ITR, if filed after the 31 July will attract a 5,000 penalty.

For those who have MF investments, Abdulla said “Currently, investors have to inform KRAS to update their PAN status. The KYC status for those whose Aadhar-PAN is not linked will be updated as “On hold”. KYC verified status is also a regulatory requirement for processing of transactions,” he said

Enrolling for Aadhaar may not be a feasible option as it can only be done physically in India. “An NRI can only enroll for Aadhaar by visiting one of the Aadhaar Kendras located in India. They must physically visit the Aadhaar Kendra to complete the biometric authentication,” said Adithya Reddy, an international tax advisor.

Shipra Singh & Sashind Ningthoukhongjam

Courtesy : Mint Publications

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