So much awaited decision of Supreme Court on constitutional validity of Section 139AA of the Income Tax Act introduced in the last budget has been delivered. The impression which one gets on reading the media reports is that the court has invalidated the provisions of Section 139AA, and has ordered against the requirement of linking of PAN card and Aadhaar Card as well as the mandatory requirement to quote your Aadhaar Card in your Income Tax return if filed after 1 July, 2017. What the court has ordered is not what the media is making out it to be. Let us understand the implications of the Supreme Court’s order in detail.
Requirement of Section 139AA
Before we go to examine the immediate implications as well as implications in due course, let us first understand what are the provisions of recently inserted Section 139AA of the Income Tax Act. Section 139 AA is divided in two parts and provides three things in connection with PAN number and Aadhaar Number. The first two things have come into operation after the Finance Act got presidents assent on 31 March, 2017. Firstly it provides for mandatory quoting of your Aadhaar number while filing your income Tax Return after 1 July, 2017. The second requirement of Section 139AA is that you will have to quote your Aadhaar number while making an application for allotment of new PAN number after 1 July.
The law also provides that these provisions will apply only in cases where a person is entitled to apply for an Aadhaar number. As per the Aadhaar scheme only the person who has been resident in India for more than 182 days is entitled to apply for the Aadhaar, so NRIs are not eligible to obtain the Aadhaar number. Moreover all the foreign citizens i.e expats who are staying in India for more than 182 days on the date of making the application, are also eligible to obtain the Aadhaar number. Aadhaar is only a proof for identification and does not serve as the purpose of your citizenship. The law further provides that in case you have not yet received your Aadhaar number/card you can quote the Aadhaar enrolment number.
The second part of Section 139AA has wider ramifications as it cover all the persons who have PAN number whether they are filing their income tax return or not. The second part requires all the persons whether tax payer or not to intimate their Aadhaar number to authorities to be notified by the government before a date yet to be specified.
This part though has come into effect from 1 July but actual implementation of the same will be from the date to be notified by the government. In case you fail to intimate your PAN number by the date which may be notified later on, the PAN number allotted to you would become invalid and all the consequences will follow.
Let us understand the consequences if your PAN number becomes invalid. First and most important implication of your PAN number becoming invalid is that you will not get the credit for all the TDS which has been deducted from your income whether as salary or interest etc. as the PAN number no longer exists. The other consequence on a PAN number becoming invalid will affect many non tax payers like citizen and widows who do not have taxable income and therefore submit form No. 15 G or 15H.
PAN number submitted by you is invalid and effectively you do not have any PAN. So instead of not deducting TDS from the interest/other income being paid to you, the payer will deduct tax @ 20 percent under section 206A, and to add insult to the injury you will not be able to get credit for the same. Giving of an invalid PAN number amounts to furnishing a wrong PAN or not furnishing of your PAN for which a penalty of Rs 10,000/- can also be levied on you under Section 272B. So the PAN card becoming invalid if the provisions come into effect will have huge adverse impact on people who submit form N0. 15G or 15H.
The Supreme court has upheld the power of the Parliament to pass any law which mandates linking of the PAN number and Aadhaar number. And thus has upheld constitutional validity of Section 139AA. The Supreme Court’s order, however, is subject to the pending case before the Constitutional Bench of the Supreme court which is examining the subject under article 21 of the Constitution, of right to privacy and concerns that the Aadhaar scheme affects the human dignity and whether it infringed on the right to privacy and if there was any threat of data leakage. So for the time being you are spared of having to quote the PAN while making application for fresh PAN number.
The Court has specifically stated that those tax payers who already have their Aadhaar number should quote the same while filing their income tax return. So in case you do not have your Aadhaar number you need not worry and rush to apply for one as you can file you income tax return without quoting your Aadhaar Number.
Implications after the decision of the constitutional bench is delivered
In case the Court upholds that the Aadhaar scheme does not violates the rights of privacy and does not affects human dignity, all the PAN holder will have to intimate their Aadhaar number to the authority if the government notifies the date and the authority to whom such information is to be given. Going by the willingness of the Supreme Court to accommodate the government and the tone of the judgement announced seems the Supreme Court will hold that the Aadhaar scheme not be violative of article 21 of the Constitution of India.
As the court has asked the tax payers who already have Aadhaar number to quote the same while filing income tax returns after 1 July, 2017, and since the Court has under this order directed the government to take appropriate steps to stop leakage of the Aadhaar data, which is one of the issue pending before the constitutional Bench of the Supreme Court, I feel the order of the Supreme Court will eventually come in favour of the government and thus paving the way for full implementation of Section 139AA explained above.
Let us keep our fingers cross till the issue is finally decided.
(The writer is Mumbai-based Financial Expert)
Updated Date: Jun 10, 2017 11:53 AM