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CBDT Notifies New Consequences for Inoperative PAN

The Income-tax (Fourth Amendment) Rules, 2023 - Amendment in Rule 114AAA

Notification G.S.R. 227(E) [No. 15/2023/F.NO. 370142/14/2022-TPL], Dated March 28, 2023.


Introduction

The Central Board of Direct Taxes (‘CBDT’) has issued a notification regarding the list of consequences that will apply to a person if their Permanent Account Number (‘PAN’) becomes inoperative. CBDT, in the exercise of the powers conferred by section 139AA of the Income-tax Act, 1961 (‘IT Act’), read with section 295 of the IT Act, has made certain amendments to the Income-tax Rules, 1962 (‘IT Rules’). These amendments aim to regulate the process of making PAN inoperative and specify the repercussions of such inoperability.


Background

The CBDT, as part of its ongoing efforts to streamline the income tax system and enhance compliance, has introduced rule 114AAA in the IT Rules. This rule outlines the manner in which a person's PAN can become inoperative and the subsequent implications. It applies to individuals who were allotted a PAN on or before July 1, 2017 and are required to link their Aadhaar number with PAN as per the provisions of section 139AA of the IT Act.


Making PAN Inoperative

According to rule 114AAA of the IT Rules, if a person fails to intimate their Aadhaar number by March 31, 2022, despite having been allotted a PAN on or before July 1, 2017, their PAN will become inoperative. In such cases, the person will be liable to pay a fee as prescribed in sub-rule (5A) of rule 114.


Activation of Inoperative PAN

If the person in question eventually links their Aadhaar number with their PAN after March 31, 2022, and pays the applicable fee, their PAN will become operative again within thirty days from the date of the Aadhaar number intimation.


Consequences of Inoperative PAN

When a person's PAN becomes inoperative, they will face certain consequences as specified under sub-rule (3) of rule 114AAA of the IT Rules. These consequences will be applicable for the period commencing from the specified date until the PAN becomes operative again. Let's explore these consequences in detail:


1. Refund of Tax Amounts:

During the inoperative period, any amount of tax or part thereof due under the provisions of the IT Act, shall not be refunded to the person. This means that if the person is eligible for a tax refund during this period, they will not receive it until their PAN becomes operative.


2. Interest on Tax Refunds:

Additionally, no interest shall be payable on the tax refund for the period starting from the specified date and ending on the date the PAN becomes operative again. This implies that the person will not accrue any interest on the withheld tax refund during the inoperative period.


3. Higher Tax Deduction Rate:

For individuals from whom tax is deductible under Chapter XVIIB of the IT Act, the deductor will be required to deduct tax at a higher rate in accordance with the provision of section 206AA of the IT Act. This higher rate aims to ensure stricter compliance and recover any potential tax liabilities effectively.


4. Higher Tax Collection at Source Rate:

Similarly, for individuals from whom tax is collectible at source under Chapter XVII-BB of the IT Act, the collector will be required to collect tax at a higher rate in accordance with the provisions of section 206CC of the IT Act. This provision seeks to deter tax evasion and ensure the collection of all due taxes.


Implementation and Verification:

The provisions mentioned above will come into effect from the date specified by the CBDT. To enforce these rules and determine the operational status of a PAN, the Principal Director General of Income-tax or Director General of Income-tax will specify the formats, standards, and verification procedures under sub-rule (1) and sub-rule (2) of Rule 114AAA of the IT Rules.


Conclusion And Analysis:

With the introduction of the Income-tax (Fourth Amendment) Rules, 2023, and the substitution of Rule 114AAA of the IT Rule, the CBDT has strengthened the framework for regulating inoperative PANs. It is crucial for individuals who have been allotted a PAN on or before July 1, 2017, to ensure timely linkage of their Aadhaar number to avoid the inoperative status and the associated consequences. Compliance with these regulations will not only help individuals avoid penalties but also contribute to the overall efficiency and transparency of the income tax system.


For more information and detailed guidelines, it is advisable to refer to the official notification, G.S.R. 227(E) [No. 15/2023/F.NO. 370142/14/2022-TPL], dated 28-3-2023, issued by the CBDT.


Authored by Pranav Dabas, Advocate at Metalegal Advocates. The views are personal and do not constitute legal opinion.

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