New IT Rule 114(5A): PAN-Aadhaar Linking delay Penalty

CBDT has notified the Income-tax (Third Amendment) Rules, 2022 to insert new IT Rule 114(5A) to impose penalty on delay/ default in PAN-Aadhaar Linking applicable w.e.f. 01/04/2022, i.e. a penalty of Rs. 500/ Rs. 1000 shall be applicable for delays or defaults of upto/ above 3 months respectively, in linking thereof. Option to link the PAN with Aadhaar with penalty shall be available upto 31/03/2023, after which the PAN shall become inoperative/ defunct, which may follow various penal/ other consequences. It may be noted that deadline for linking of PAN-Aadhaar has earlier been extended by CBDT on many occasions, last extended upto 31/03/2022. CBDT has issued Notification 17/2022, Circular 7/2022, a Press Release and an Order on the subject, as detailed here-under:

CBDT Notification 17/2022: New IT Rule 114(5A) inserted to levy penalty for delay in PAN-Aadhaar Linking

New IT Rule 114(5A): PAN-Aadhaar Linking delay Penalty of Rs. 500/100 from 01/04/2022: CBDT Notification 17/2022

G.S.R. 229(E).- In exercise of the powers conferred by sections 139AA and 234H read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. Short title and commencement:-

(1) These rules may be called the Income-tax (Third Amendment) Rules, 2022.

(2) They shall come into force from 01/04/2022.

2. In the Income-tax Rules, 1962 (herein after referred to as principal rules), in rule 114, after sub-rule 5, the following sub-rule shall be inserted, namely:-

(5A) Every person who, in accordance with the provisions of sub-section (2) of section 139AA, is required to intimate his Aadhaar number to the prescribed authority in the prescribed form and manner, fails to do so by the date referred to in the said sub-section, shall, at the time of subsequent intimation of his Aadhaar number to the prescribed authority, be liable to pay, by way of fee, an amount equal to,-

(a) five hundred rupees, in a case where such intimation is made within three months from the date referred to in sub-section (2) of section 139AA; and

(b) one thousand rupees, in all other cases.

3. In the Principal rules, in rule 114AAA,-

(a) in sub-rule (1), for the figures “2020”, the figures “2022” shall be substituted;

(b) after sub-rule (2), the following proviso shall be inserted, namely “Provided that the provisions of this sub-rule shall have effect from the date specified by the Board.”;

(c) in sub-rule (3), for the figures “2020”, the figures, words and letter “2022, after payment of fee in accordance with sub-rule (5A) of rule 114,‟ shall be substituted.

Note: The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Subsection (ii) vide number S.O. 969 (E), dt. 26/03/1962 and last amended by the Income-tax (2nd Amendment) Rules, 2022, vide notification number G.S.R. 24(E) dt. 18/01/2022.

CBDT Income Tax Notification 17/2022 dt. 29/03/2022: Income-tax (Third Amendment) Rules, 2022 notified to insert new IT Rule 114(5A) on Penalty for delay/ default in PAN-Aadhaar Linking, w.e.f. 01/04/2022

CBDT Circular 7/2022: PAN not linked with Aadhaar to be inoperative from 01/04/2023

1. Instances had come to the notice of the Income-tax Department that multiple permanent account numbers (PANs) have been allotted to one person or one PAN has been allotted to more than one person. In order to have a robust way of de-duplication of PAN data base, Finance Act, 2017 with effect from 01/04/2017, inserted section 139AA in the Income-tax Act, 1961 (the Act) making it mandatory for a taxpayer who is eligible to obtain Aadhaar, to quote his Aadhaar in the application form for PAN and return of income.

2. Sub-section (2) of section 139AA of the Act makes it mandatory for every person who has been allotted a PAN as on 01/07/2017 to intimate his Aadhaar Number so that the Aadhaar and PAN can be linked. This is required to be done on or before a notified date, failing which the PAN shall become inoperative.

3. Accordingly, in case of failure to intimate the Aadhaar Number by the last extended notified date i.e. 31/03/2022, the PAN allotted to the person shall be made inoperative in accordance with the provisions of the Act. Further, the Finance Act, 2021 inserted a new section 234H in the Act to complete the process of PAN-Aadhaar linking for identifying bogus PANs.

This section provides that where a person who is required to intimate his Aadhaar under subsection (2) of section 139AA fails to do so on or before a notified date, he shall be liable to pay a fee not exceeding a sum of one thousand rupees, as may be prescribed, at the time of making intimation under sub-section (2) of section 139AA after the said date.

4. Further, rule 114AAA of the Income-tax Rules provides that if PAN of a person has become inoperative, he will not be able to furnish, intimate or quote his PAN and shall be liable to all the consequences under the Act for such failure. This will have a number of implications such as:-

(i) The person shall not be able to file return using the inoperative PAN;

(ii) Pending returns will not be processed;

(iii) Pending refunds cannot be issued to inoperative PANs;

(iv) Pending proceedings as in the case of defective returns cannot be completed once the PAN is inoperative; and

(v) Tax will be required to be deducted at a higher rate as PAN becomes inoperative.

4.1 In addition to the above, the tax payer might face difficulty at various other fora like banks and other financial portals, as PAN is one of the important KYC criterion for all kinds of financial transactions.

5. Hence, in order to have smooth application of section 234H and existing rule 114AAA, it is clarified that the impact of sub-rule (2) of rule 114AAA, i.e. where a person. whose permanent account number has become inoperative under sub-rule (1) is required to furnish, intimate or quote his permanent account number under the Act, it shall be deemed that he has not furnished, intimated or quoted the permanent account number, as the case may be, in accordance with the provisions of the Act, and he shall be liable for all the consequences under the Act for not furnishing, intimating or quoting the permanent account number, shall come into effect from 01/04/2023 and the period beginning from 01/04/2022 and ending with 31/03/2023, shall be the period during which the said sub-rule shall not have its negative consequences of the nature referred to in the said sub-rule or specified in paras 4 and 4.1 above. However, the tax payer shall be liable to pay a fee in accordance with sub-rule (5A) of rule 114.

CBDT Income Tax Circular 7/2022 dt. 30/03/2022: Clarification on relaxation of provisions of IT rule 114AAA prescribing the manner of making PAN not linked with Aadhaar inoperative from 01/04/2023

PAN to be inoperative/ defunct from 01/04/2023, if not linked with Aadhaar

Every person having PAN as on 01/07/2017, who is eligible to obtain Aadhaar Number, is required to intimate/ link his Aadhaar with PAN on or before 31/03/2022. In the event of failure to do so, the PAN shall become inoperative, which shall have various consequences, i.e. all procedures in which PAN is required shall be halted. However, the PAN can be restored upon intimation/ linking of Aadhaar with PAN after payment of a prescribed fee.

Accordingly, to avoid inconvenience to the taxpayers, CBDT has provided an opportunity to link PAN with Aadhaar, vide Notification 17/2022, by paying prescribed penalty of Rs. 500/ Rs. 1000 upto 31/03/2023 without facing such repercussions. In the meantime the PAN of the assessees who have not yet intimated their Aadhaar, will continue to be functional for the procedures under the Income Tax Act, like furnishing of return of income, processing of refunds etc. , upto 31/03/2023, after which the PAN of taxpayers who fail to intimate their Aadhaar, as required, shall become inoperative/ defunct and all the consequences under the Act for not furnishing, intimating or quoting the PAN shall apply to such taxpayers.

CBDT Press Release dt. 30/03/2022: Amendment to the provisions of Income-tax Rules, 1962 for prescribing fees/ penalty u/s 234H of the Income-tax Act, 1961 for delayed linking of PAN with Aadhaar

Specified date for the purposes of proviso to IT rule 114AAA(2)

CBDT has notified 01/04/2023, as the specified date for the purpose of the  proviso to sub-rule (2) of rule 114AAA of the Income-tax Rules, 1962, i.e. the date from which the PAN of taxpayers who fail to intimate their Aadhaar, shall become inoperative/ defunct.

CBDT Order dt. 30/03/2022: Specified date for the purposes of proviso to IT Rule 114AAA(2), i.e. the date from which PAN not linked with Aadhaar to be inoperative

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  1. S. Govindraj

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