The government has made requirement of a Permanent Account Number (PAN) or Aadhaar number for depositing or withdrawing Rs 20 lakh or more in a financial year or for opening a current account mandatory. The move is expected to help the income tax department monitor high-value cash transactions, and deposits/withdrawals where tax would not be getting paid by the individual otherwise on his or her income.
What are the new rules?
The Central Board of Direct Taxes, in a notification, said furnishing PAN or biometric Aadhaar will be mandatory for such high-value cash deposits or withdrawals from banks in a financial year, or the opening of a current account or cash credit account with a bank or post office.
Banks, post offices and co-operative societies would be required to report the transactions of deposits and withdrawals aggregating to Rs 20 lakh or more in a financial year. As of now, PAN is required to be furnished for cash deposits of Rs 50,000 or more in a day. With these rules, a threshold of Rs 20 lakh has been defined for the full financial year.
How will this help tax department?
The mandatory condition of obtaining PAN for deposit and withdrawals would help the government in tracing the movement of cash in the financial system. Along with the already existing provision of TDS deduction under Section 194N of the Income-tax Act, 1961, these rules are expected to further tighten the loopholes. Section 194N was introduced in Union Budget 2019 for tax deduction at source (TDS) on cash withdrawals exceeding Rs 1 crore. In the Budget 2020, the threshold limit for TDS under Section 194N was reduced to Rs 20 lakh for taxpayers who have not filed their income tax returns for the past three years.
“This may help the tax department to plug some loopholes, such as for those high-value deposits and withdrawals where they say they don’t have PAN. This could be applied in case of agriculturists or the non-income taxpayers. The PAN-AADHAAR interoperability will help banks to record details for those who don’t have PAN. Earlier, there wasn’t any threshold for producing PAN for withdrawals,” Nangia & Co LLP Partner Shailesh Kumar said.
The interchangeable Aadhaar-PAN provision in the rules would allow a bank or financial institution to ask for Aadhaar in case an individual states that he or she doesn’t have PAN, tax experts said. The Finance Act, 2019, has provided for interchangeability of PAN with Aadhaar. It has been provided that every person who is required to furnish or intimate or quote his PAN under the Income-tax Act, and who, has not been allotted a PAN but possesses the Aadhaar number, may furnish or intimate or quote his Aadhaar in lieu of PAN.