Tax department’s dilemma: How to ensure universal seeding of Aadhaar with PAN

Tax department wants to ensure that all PANs are seeded with Aadhaar to weed out duplicate PANs and check tax evasion

New Delhi: The tax department is faced with a dilemma.

It wants to ensure that all permanent account numbers (PAN) are seeded with Aadhaar to weed out duplicate PANs and check tax evasion. However, it does not have any powers under the Income Tax Act to compulsorily seek the Aadhaar number from taxpayers.

Because of this, so far, only around one-third of PANs have been seeded with Aadhaar.

To counter this, it is exploring ways to further incentivize taxpayers to encourage them to voluntarily link their Aadhaar to PAN.

According to data available with the tax department, more than 24 crore PAN numbers have been issued by the tax department. Of this, around 11 lakh have been declared invalid due to various reasons, including multiple issuance to the same taxpayer.

With Aadhaar, issued by the Unique Identification Authority of India (UIDAI), also crossing the one billion coverage mark, the tax department is hopeful that it will successfully cross-tab PAN and Aadhaar and successfully weed out more duplicate issuances.

The income tax department has been using technology to match personal details to ensure that duplicate PANs are not issued. However, some taxpayers managed to get more than one PAN by making some changes in their personal information at the time of submission of the PAN application. By linking PAN with Aadhaar—a 12-digit number unique to every individual as it captures biometric information like fingerprints and iris scan—the tax department is trying to ensure that one individual holds only one PAN.

PAN is a 10-digit alpha-numeric number allotted by the income tax department and is mandatory for conducting tax transactions and high-value financial transactions. This helps the tax department detect tax evasion and circulation of black money.

“The Income Tax Act empowers us to mandatorily ask for the PAN number. But it does not give us the powers to mandatorily ask taxpayers about their Aadhaar number,” said an income tax department official, who did not wish to be identified. “The law ministry has also pointed this out. So, we are looking at ways to further incentivize taxpayers to give their Aadhaar number voluntarily,” the official added.

At present, the tax department collects information on Aadhaar through various procedural incentives. For instance, there is an additional column in the PAN application form for taxpayers to give their Aadhaar number. However, this is not mandatory. Also, there is a similar column in the income tax return form, but here again, the taxpayer has the option to leave it blank.

As an incentive, the tax department had introduced a provision last year, wherein taxpayers could digitally verify the tax return form using Aadhaar-based authentication without having to post their signed tax return acknowledgement to the central processing centre in Bengaluru.

B.M. Singh, former chairman of the Central Board of Direct Taxes, said using Aadhaar will help in checking the proliferation of duplicate PANs.

“The fruitful approach will be to incentivize taxpayers to disclose their Aadhaar. The tax department should look at more ways to encourage taxpayers to voluntarily disclose Aadhaar,” he said.