Budget 2023- PAN Card May Not be Needed for Some Financial Transactions Supported by Aadhaar

In the upcoming Union Budget 2023-24, the Finance Ministry is expected to propose eliminating the requirement to present a Permanent Account Number (PAN) card for financial transactions supported by Aadhaar. The action aims to streamline regulations in response to requests from banks and financial institutions. Because the vast majority of accounts are already Aadhaar-enabled, some banks have petitioned the government to remove the PAN requirement. According to a government official familiar with the situation, the administration has received and is currently inspecting representations in this regard. Financial transactions in which a PAN is not provided are currently subject to 20% Tax Deducted at Source (TDS), even if the applicable rate is lower, according to Section 206AA of the Income Tax Act. The Finance Ministry is expected to propose eliminating the requirement of providing a Permanent Account Number (PAN) card for financial transactions backed by Aadhaar in the upcoming Union Budget 2023-24.

The move is intended to simplify rules in response to financial institutions and banks' requests.An official familiar with the situation stated that the government has received representations in this regard, which are being reviewed. Some banks want the Income Tax Act to be changed to avoid the unnecessary duality and confusion caused by the current system. Several issues arose during the bank transfer of funds. The PAN card was developed in order to combat fraud and tax evasion. For transactions exceeding a certain threshold, PAN cards are required.

Aadhaar numbers are almost always pre-populated into individual accounts, according to banks. According to Section 139A(5E) of the Income Tax Act, clients may also use their Aadhaar number instead of their PAN card for certain transactions. Aadhaar numbers are used to seed nearly all individual accounts. They also claim that under Section 139A(5E) of the Income Tax Act, users can provide an Aadhaar number instead of a PAN card for certain transactions.

A potential clarification on the matter, according to the official, may spell out a specific limit below which PAN may not be required. Section 206AA, according to the report, ensures that TDS is applied correctly and prevents tax evasion by entities or individuals who do not quote their PAN cards in certain transactions. The clarification is likely to benefit those who are not required to provide PAN but may benefit from higher tax deductions in certain transactions.