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Aadhaar-PAN linkage: No conflict between Aadhaar Act and IT Act, rules SC; relief to govt

In a set back to the Modi government, a two member bench of the Supreme Court today has partially stayed implementation of the provisions of the Income-tax Act mandating linking of PAN with Aadhaar number. The stay has been granted till such time that the batch of appeals pending before the constitutional bench of the SC pronounces its order on the aspect whether the entire Aadhaar scheme infringes the right to privacy of citizens of India.

However, as a relief to the government, the SC held that there is no conflict between the provisions of the IT Act and Aadhaar Act. This was in reply to allegations made by some opposition members that the provisions of the Aadhaar Act stated that Aadhaar was optional while the provisions of the IT Act make it mandatory. To this effect there was a conflict between the two Acts.

The SC also held that the Parliament is competent to enact provisions in the IT Act to make Aadhaar mandatory for PAN and income-tax return filing. Accordingly, the SC upheld validity of law making Aadhaar mandatory for PAN and ITR filing, subject to outcome of appeals pending before the constitutional bench of the SC.

To instill faith in citizens of India on the Aadhaar scheme, the SC has directed the government to ensure that there is no leakage of data from the Aadhaar scheme. Lot of citizens and opposition members had raised their concern on privacy of Aadhaar data based on news reports which mentioned that Aadhaar officials and contracters were leaking the Aadhaar data.


The SC acknowledged the fact that invalidating PAN cards of citizens who have not linked Aadhaar number to PAN by the stipulated date (ie, 1 July, 2017) will have severe consequences. Accordingly, it has asked the government to consider relaxing the consequences of not linking of Aadhaar number with PAN. Acknowledging the fact that approximately 90 percent of the citizens having PAN have obtained Aadhaar number, the SC has directed all PAN card holders who have obtained Aadhaar number to link both.

The SC also clarified that citizens who have enrolled for Aadhaar card but not received their Aadhaar numbers are exempt from mandatory linking of Aadhaar with PAN and consequent invalidation of PAN. It is noteworthy that the Parliament in the amendment to the IT Act had mentioned that those persons who have applied for Aadhaar number and not got it till the date of filing of ITR forms are required to quote their Aadhaar enrollment ID in the ITR forms. There is a relief to such citizens.

Further, the SC has clarified that linkage of Aadhaar number to PAN is prospective and will not apply retrospectively to past transactions undertaken by Indian citizens. This will go a long way in allying fears of people based on speculations of this being applicable to past transactions.

While the SC has recommended the governement to reduce the repercussions of not linking Aadhaar number with PAN, it has not issued any directions to that effect. Based on the direction of the SC, it is advised that all PAN card holders who have obtained Aadhaar number should proceed with Aadhaar number-PAN linkage. The exemption of linking seems to have been provided to only those citizens who have applied for Aadhaar number and not received the same. Accordingly, it is a sigh of relief for such citizens. Nevertheless, in interest of economy as a whole, it is suggested that all citizens apply for Aadhaar number and link it to their PAN at the earliest.

(Manoj N Kumar is Partner, Direct Tax and Chandra Prakash Agarwal is Manager at BMR & Associates LLP)

Updated Date: Jun 09, 2017 19:29 PM

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