Using an inoperative PAN? Beware of a Rs 10,000 fine per transaction! Learn why your PAN may become inactive, how to reactivate it, and avoid penalties. Stay compliant with tax rules—read more to protect yourself from hefty fines.
The Income Tax Department of India has intensified its crackdown on the use of inoperative PANs (Permanent Account Numbers), imposing hefty penalties of up to Rs 10,000 per financial transaction under Section 272B of the Income Tax Act. This strict enforcement is part of a broader initiative to ensure compliance with the mandatory PAN-Aadhaar linking norm, aimed at curbing tax evasion and enhancing financial transparency. If you’re using an inoperative PAN, you could face severe financial and legal consequences, including frozen bank accounts, rejected tax refunds, and even legal action. This blog post delves into the latest details, consequences, and steps to avoid penalties, to help you stay informed and compliant.
What is an Inoperative PAN?
A PAN is a unique 10-digit alphanumeric identifier issued by the Income Tax Department to track financial transactions and prevent tax evasion. However, a PAN becomes inoperative when it is not linked with Aadhaar or if an individual holds multiple PANs, uses forged documents, or provides mismatched personal information. An inoperative PAN is invalid for most tax and financial purposes, rendering it unusable for transactions like opening bank accounts, investing in mutual funds, or filing Income Tax Returns (ITR).
The PAN-Aadhaar linking mandate, enforced under Section 139AA of the Income Tax Act, requires all PAN holders (except exempt categories) to link their PAN with Aadhaar to maintain its validity. Failure to comply by the deadline—May 31, 2024, for most individuals, or December 31, 2025, for those who obtained PAN before October 1, 2024, using Aadhaar enrolment ID—results in the PAN becoming inoperative.
Why is the Income Tax Department Cracking Down?
The Income Tax Department is leveraging advanced data analytics and AI-powered systems to detect and block transactions involving inoperative PANs. The crackdown aims to:
- Curb Tax Evasion: Unlinked or duplicate PANs are often used to create fake identities or set up shell companies, facilitating tax evasion.
- Enhance Transparency: Linking PAN with Aadhaar ensures a unified identity for tracking high-value transactions.
- Streamline Tax Administration: A valid PAN simplifies ITR processing, tax refunds, and compliance monitoring.
As of January 2024, over 11.48 crore PANs remained unlinked, prompting the government to collect Rs 601.97 crore in late fees from non-compliant taxpayers between July 2023 and January 2024. The latest enforcement drive signals a zero-tolerance approach to discrepancies in identity documentation.
Penalties for Using an Inoperative PAN
Using an inoperative PAN in financial transactions can attract a penalty of Rs 10,000 per transaction under Section 272B. However, penalties are imposed only after the taxpayer is given an opportunity to explain the reason for non-compliance. If the error is unintentional, the penalty may be waived. Key transactions that could trigger this fine include:
- Banking Transactions: Opening or operating a bank account, depositing or withdrawing cash above Rs 50,000, or applying for a debit/credit card.
- Investments: Purchasing mutual fund units, shares, or securities exceeding Rs 1 lakh per transaction.
- Property Transactions: Buying or selling immovable property valued over Rs 10 lakh.
- Loans: Applying for loans or credit facilities.
- ITR Filing: Filing Income Tax Returns or claiming tax refunds.
- High-Value Purchases: Sale or purchase of goods/services exceeding Rs 2 lakh per transaction.
Additionally, an inoperative PAN leads to:
- Higher TDS/TCS Rates: Under Sections 206AA and 206CC, tax is deducted or collected at a higher rate (up to 20%) for transactions involving an inoperative PAN. For example, TDS on fixed deposit interest jumps from 10% to 20% if the PAN is unlinked.
- Frozen Bank Accounts: Banks may restrict account operations if the PAN is inoperative.
- Delayed Refunds: Tax refunds are withheld until the PAN is reactivated.
- Legal Action: Deliberate use of fake or duplicate PANs can lead to prosecution and reputational damage.
Who is Exempt from PAN-Aadhaar Linking?
Certain categories are exempt from the PAN-Aadhaar linking requirement:
- Non-Residents: As per the Income Tax Act, Non-Resident Indians (NRIs) are not required to link PAN with Aadhaar if their tax residency status is updated as non-resident. However, linking is recommended if they possess an Aadhaar.
- Residents of Exempt States: Individuals residing in Assam, Jammu and Kashmir, and Meghalaya are exempt.
- Senior Citizens: Those aged 80 years or above during the financial year.
- Non-Citizens: Foreign nationals who are not required to obtain Aadhaar.
How to Check if Your PAN is Inoperative?
To avoid penalties, verify your PAN status using these steps:
- Visit the Income Tax e-filing portal: https://www.incometax.gov.in/iec/foportal/.
- Click on ‘Quick Links’ and select ‘Link Aadhaar Status’.
- Enter your 10-digit PAN and 12-digit Aadhaar number.
- Click ‘View Link Aadhaar Status’ to see if your PAN is linked. If unlinked, the status will show as ‘Active but inoperative’.
How to Reactivate an Inoperative PAN?
If your PAN is inoperative, you can reactivate it by linking it with Aadhaar. Here’s a step-by-step guide:
Online Linking Process
- Visit the e-filing portal: Go to https://eportal.incometax.gov.in/iec/foservices/#/pre-login/bl-link-aadhaar.
- Pay the Penalty: If linking after May 31, 2024, pay a late fee of Rs 1,000 via the portal using e-Pay Tax under ‘Other Receipts (500)’. No penalty applies for those linking by December 31, 2025, if PAN was obtained before October 1, 2024, using Aadhaar enrolment ID.
- Enter Details: Provide your PAN, Aadhaar number, and name as per Aadhaar.
- Submit Request: Complete CAPTCHA verification and click ‘Link Aadhaar’.
- Verification: The request is sent to UIDAI for validation. The PAN is typically reactivated within 7-30 days.
SMS Linking Process
Send an SMS to 567678 or 56161 in the format:
UIDPAN <12-digit Aadhaar number> <10-digit PAN>
Example: UIDPAN 123456789012 ABCD1234EF
For NRIs
NRIs without Aadhaar can update their tax residency status to non-resident by:
- Emailing or submitting a physical application to the Assessing Officer (find details under ‘Know Your AO’ on the e-filing portal).
- Providing proof of non-residency (e.g., passport, visa).
Upon verification, the PAN is reactivated without Aadhaar linking.
What to Do if You Have Multiple PANs?
Holding multiple PANs is illegal and can lead to penalties. To avoid issues:
- Surrender Duplicate PANs: Visit the e-filing portal and submit the ‘Changes or Correction in existing PAN data/Reprint of PAN card’ form to surrender additional PANs.
- Link Primary PAN: Ensure the valid PAN is linked with Aadhaar.
Consequences of Non-Compliance
Failing to reactivate an inoperative PAN can disrupt your financial life:
- Inability to File ITR: You cannot file Income Tax Returns, leading to penalties of up to Rs 5,000 for belated filing (or Rs 1,000 if income is below Rs 5 lakh).
- Blocked Transactions: Over 18 financial transactions, including opening demat accounts, paying insurance premiums above Rs 50,000, or foreign travel payments exceeding Rs 50,000, are restricted.
- Higher Compliance Costs: Reactivating a PAN after prolonged non-compliance may involve additional legal and procedural costs.
Tips to Avoid Penalties
- Check PAN Status Regularly: Verify your PAN-Aadhaar linkage annually.
- File ITR on Time: The deadline for AY 2025-26 is July 31, 2025, with an extended deadline of September 15, 2025, for certain cases.
- Avoid Cash Transactions: Limit cash payments to stay under the radar of high-value transaction tracking.
- Consult Tax Experts: Seek professional advice for complex cases, such as NRIs or duplicate PANs.
- Update KYC: Ensure your bank and financial institutions have your updated PAN details.
Final thought
The Income Tax Department’s stringent measures against inoperative PANs in 2025 underscore the importance of PAN-Aadhaar linking. With penalties of Rs 10,000 per transaction, frozen accounts, and higher TDS/TCS rates, non-compliance can be costly. By verifying your PAN status, linking it with Aadhaar, and surrendering duplicate PANs, you can avoid these penalties and ensure seamless financial transactions. Stay proactive, check your PAN status today, and comply with Income Tax regulations to safeguard your financial future.
For more details, visit the Income Tax e-filing portal or consult a tax professional. Don’t let an inoperative PAN derail your financial plans—act now to stay compliant in 2025!
