On July 1 2023, the Permanent Account Number (PAN) of 10 crore NRIs living abroad became inoperative. This means that your PAN cannot be used for any financial transactions or tax purposes.
But don't worry. There is a way to activate your PAN and resume your normal activities as an NRI.
Before we get into that, let's understand why this has happened.
PAN and Aadhaar linking is not mandatory for NRIs if your tax residency is updated as Non-Resident. However, it is recommended to link Aadhaar (if you have it) with PAN.
You can do it here: https://eportal.incometax.gov.in/iec/foservices/#/pre-login/bl-link-aadhaar.
But if you do not have an Aadhaar card, then linking with PAN is neither possible nor mandatory. In such cases, make sure you update your tax residency status. Else, your PAN will become inoperative.
The linking of Aadhar with PAN, has created an unpleasant experience for NRIs, even though they are exempt from obtaining an Aadhar number.
While the linking is optional for NRIs, the Income Tax Department requires them to update the residential status on the income tax portal. This is necessary even for NRIs filing taxes as non-residents for several years and registered at NSDL.
For those who haven't done this by June 30, 2023, their PAN became inoperative. An inoperative PAN can freeze your investments and bank accounts in India.
Having an inoperative PAN can cause issues for NRIs with investments, loans, and other dealings in India. Some of these problems are:
The Association of Mutual Funds in India (AMFI) has announced that individuals holding inactive PAN cards cannot initiate new SIPs, STPs, and SWPs transactions. As a result, you may face rejections for redemption requests and may find it challenging to claim dividend payouts.
The same holds true with your demat holdings. You may not be able to transact (buy or sell) shares in your demat account.
With an inoperative PAN, you cannot claim tax refunds.
You can no longer request a lower TDS certificate from the IT department. Earlier, NRIs were allowed to get a lower TDS certificate to mitigate the impact of high TDS rates on NRO account transactions, property sales and rental income.
You cannot open a newbank account in India with an inoperative PAN card.
If you seek a loan in India, you must have an active PAN card. Thus, your loan applications may also be rejected because of an inoperative PAN.
The Income Tax department has specified the procedure to resolve the issue of inoperative PAN for NRIs. Here are two options given by the department:
You can send an email or physical application to the assessing officer for a change of residential status from resident to non-resident. You can find the email ID of the assessing offer in the 'Know your AO' section on the IT e-filing website.
Here’s the list of documents you need to submit:
And any of the following documents to confirm your NRI status:
Although obtaining an Aadhaar card is not mandatory, you can choose this route to link your Aadhar and PAN. Upon linking the two, your PAN card will become active.
You must visit the Aadhaar Kendra in India. You can only book the appointment slot online but not apply for Aadhar online. You must complete your biometrics by visiting the Kendra to get an Aadhaar card.
You can link your PAN and Aadhaar by paying a penalty of Rs 1,000 to activate your PAN.
Staying miles apart and keeping track of India's latest rules, regulations, and compliances can take time and effort. Having someone who can keep you posted with the latest news and updates and guide you through the process by holding your hand is a blessing in disguise.
We at iNRI can help you navigate these complex processes and simplify the entire journey. Feel free to contact us to seek guidance on compliance-related or investment-related hiccups. As always, happy to help! :)
Before we close, here’s a quick summary of what you can do to ensure your PAN is active
1. Link PAN-Aadhaar or,
2. Update your tax residency status
3. If PAN is inoperative, send the email to AO and submit all the necessary documents
You can check the status of your PAN and Aadhaar linking here: https://eportal.incometax.gov.in/iec/foservices/#/pre-login/link-aadhaar-status. Enter your PAN and Aadhaar number to check their status.
PAN is mandatory for those who earn taxable income in India and want to invest in shares, mutual funds, and other schemes.
No. You can simply update your tax residency status to Non-Resident on the income tax website. But, if you have an aadhaar card it is advisable to link it with PAN.
Aadhaar-PAN linking does not apply to any individual who is:
Your PAN will become inoperative.