Once the PAN becomes inoperative, then the individual will not be able to conduct various financial transactions such as opening of bank account, investing in shares, mutual funds etc. or wherever quoting of PAN is mandatory such as lower deduction of tax from salary, interest income etc.
As per tax experts, once the PAN become inoperative and it has to be quoted/furnished somewhere, then it will be assumed that PAN has not been furnished/quoted, then he/she may be liable to pay penalty under the Income-tax Act, 1961. As per section 272B, a penalty of Rs 10,000 may be levied for not being able to quote/furnish the PAN.
However, an individual can link the PAN with Aadhaar after the expiry of deadline by paying a penalty.
Penalty will be levied under section 234H of the Income-tax Act. Though the government is yet to announce the penalty amount, however, the maximum amount will not exceed Rs 1,000 for linking PAN with Aadhaar after the expiry of due date.
Once the penalty has been paid and linking process has been done, then PAN will once again become operative and can be used to conduct financial transactions.
It is important to note that earlier there was no provision of penalty being levied if the PAN was linked with Aadhaar after the expiry of the set deadline. The penalty provision came into effect from April 1, 2021, after section 234H was added to the Income-tax Act at the time of passing the Finance Act, 2021.
Why linking PAN with Aadhaar is mandatory?
The law to link PAN with Aadhaar was introduced in Budget 2017. A new section 139AA was inserted under the Income-tax Act. As per section 139AA, every individual who has been allotted a PAN as on July 1, 2017 and eligible to obtain Aadhaar number has to link his/her PAN with Aadhaar. If the PAN is not linked with Aadhaar before the expiry of the due date, then the PAN will become inoperative. Further, it is mandatory to quote the Aadhaar number at the time of filing income tax return and also at the time of applying for a new PAN under section 139AA.
When the law was introduced, non-linking of PAN with Aadhaar would have made the PAN invalid. It would have meant that PAN was not issued to the individual in the first place. However, to protect the validity of the transactions done prior, the word ‘invalid’ was replaced with ‘inoperative’.
Ways to link PAN with Aadhaar
There are different ways to link PAN with Aadhaar. An individual can link PAN with Aadhaar by visiting on the e-filing website of income tax department, by sending SMS or filing form.
How to link PAN with Aadhaar