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. (Representational Photo)
The government has made requirement of aPermanent 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.
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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.
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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.
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“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.
As an enthusiast deeply entrenched in the realms of financial regulations, taxation, and governmental policies, let me provide a comprehensive breakdown of the information provided in the article.
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Regulatory Changes: The Central Board of Direct Taxes has introduced new regulations mandating the furnishing of either a Permanent Account Number (PAN) or Aadhaar number for specific financial activities. Specifically, any deposit or withdrawal exceeding Rs 20 lakh in a financial year, or the initiation of a current or cash credit account with a bank or post office, will necessitate the provision of either a PAN or Aadhaar number.
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Previous Thresholds: Prior to this regulation, banks required individuals to furnish their PAN for cash deposits exceeding Rs 50,000 in a single day. The new regulation significantly raises this threshold to Rs 20 lakh for an entire financial year.
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Objective Behind the Change: The primary aim of these regulations is to bolster the monitoring capabilities of the income tax department concerning high-value cash transactions. By requiring PAN or Aadhaar numbers for such transactions, the government intends to track cash movements more effectively, ensuring that taxable transactions aren't escaping scrutiny.
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Section 194N of the Income-tax Act, 1961: The article mentions Section 194N, which was incorporated into the Income-tax Act in the Union Budget of 2019. This section mandates the deduction of tax at source (TDS) for cash withdrawals exceeding Rs 1 crore. Subsequently, in the 2020 Union Budget, this threshold was adjusted to Rs 20 lakh for taxpayers who hadn't filed their income tax returns for three consecutive years. This provision further underscores the government's efforts to regulate high-value cash transactions and ensure tax compliance.
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Implications for Tax Department: The integration of PAN or Aadhaar requirements for high-value transactions offers the income tax department a robust mechanism to monitor and trace significant cash movements. It helps plug existing loopholes, especially concerning agriculturists or non-income taxpayers who might not have a PAN. The interchangeability of Aadhaar and PAN provides flexibility to financial institutions, allowing them to capture necessary details even when customers lack a PAN.
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Interchangeability of Aadhaar and PAN: The Finance Act of 2019 paved the way for the interchangeability of Aadhaar and PAN. This means that individuals who haven't been allotted a PAN but possess an Aadhaar number can use the latter for financial transactions or any other activity where PAN is mandatory.
In summary, these regulatory changes signify the government's proactive approach to enhance transparency, curb tax evasion, and streamline the financial ecosystem by integrating Aadhaar and PAN systems and imposing stringent thresholds for high-value transactions.
