Aadhaar-PAN Linking: What NRIs need to know about inoperative PANs

Is it mandatory for NRIs to link their PAN with AAdhaar?

According the Section 139AA, any individual who has an Aadhaar or is eligible to obtain one is mandatory to link it with PAN before the prescribed due date (30 June 2023).

However, this requirement is not for NRIs as they are not eligible to obtain an Aadhaar number; all they have to do is update their residential status on the Income Tax Portal with their passport and documents supporting their past stay in India.

If NRIs fail to update their residential status, their PAN number will be invalid or inoperative, which could have adverse consequences like not being able to file their return, stopped investment transactions, not being able to get a refund, and a higher TDS deduction rate.

Impact of an inoperative or Invalid PAN for NRIs

Since July, countless NRIs have faced the invalidation of their PAN cards, throwing a wrench into their financial lives. Mutual fund investments, a cornerstone for many, have been impacted severely. AMFI's regulations bar new SIPs, STPs, and SWPs for those with inactive PANs, leading to frozen investments and missed dividend payouts. This extends to income tax filing, where inactive PANs prevent refund claims and lower TDS certificates, impacting income from rentals, property sales, and NRO accounts. In short, the invalidation has created a ripple effect, causing financial hardship and administrative hurdles for NRIs.

The Impact:

• NRIs play an integral role in India's economic well-being. Their contributions go beyond enhancing the nation's global image and extend to strengthening its financial stability through inward remittances. These remittances contribute nearly 3% of India's GDP, while NRI investments in mutual funds, shares, and bonds bolster the country's foreign exchange reserves.
• Disruptions caused by inoperative PAN cards can have adverse effects on India's macroeconomic stability, impacting both the inflow of remittances and overall financial health.

What should NRIs do if PAN becomes inoperative?

According to the recent communication from the IT department, NRIs with inactive PANs must fulfill specific requirements to rectify their financial status. They need to provide supporting documents, including a copy of their PAN card and passport, displaying their residential status and duration. This documentation aims to update the IT department's PAN database with accurate residential information. The disruptions faced by NRIs in their financial transactions underscore the need for proactive intervention by the Finance Ministry and the IT department to address the challenges faced by those residing abroad while still contributing to India's GDP.

Documents NRIs need to submit to make PAN operative

Copy of PAN Card (self-attested)
Copy of Passport (self-attested)
Details of stay outside India

How long does it take for residential status change of PAN?

The process may take approximately 30 days from the receipt of all information that the officer finds satisfactory. However, the time period may vary from case to case.

Can an NRI file ITR with inoperative PAN?

Even if your PAN becomes inoperative, as an NRI, you can still file your income tax return. However, it's crucial to understand the consequences associated with an "inoperative" PAN:

1. Pending Refunds: Refunds and any accruing interest on such refunds will not be issued for returns filed with an inoperative PAN.
2. Higher TDS Deduction: TDS (Tax Deducted at Source) will be deducted at a higher rate for transactions involving an inoperative PAN, as per the provisions of Section 206AA.
3. Higher TCS Collection: Similarly, TCS (Tax Collected at Source) will be collected at a higher rate for transactions involving an inoperative PAN, in accordance with Section 206CC.

It's essential to be aware of these consequences while filing your tax returns to avoid any potential financial implications.

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