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PAN, Aadhaar a must for cash transactions above Rs 20 lakh a year

CBDT’s move aimed at curbing unaccounted financial transactions and keeping a check on cash transactions, say tax experts

May 13, 2022 / 12:42 PM IST
Representative image

Representative image

Soon, you will have to furnish your PAN or Aadhaar if you wish to make cash withdrawals or deposits of over Rs 20 lakh in a financial year.

This would be applicable to cash transactions beyond this limit at banks, including co-operative banks, as also post offices, the Central Board of Direct Taxes (CBDT) said in a notification on May 10. You will have to mandatorily quote either PAN or Aadhaar even to open a current account or cash credit account with a bank or post office.

Also read: Six money changes in Budget 2022 that can affect your finances 

Another attempt at curbing cash transactions

The main objective of the circular is to put a check on unaccounted financial transactions through the cash route. “The purpose of this circular is curbing cash transactions by limiting the threshold for such transactions. If the assessee (individual, corporate, HUF or society) deposits or withdraws any cash amount crossing the threshold in the financial year, the banking institution or any reporting persons must inform the I-T department about the transactions,” says Deepak Jain, chief executive of TaxManagers.in.

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Based on this, the I-T department will match the transactions with the previous I-T return. If there is any discrepancy, it will send across high-value transaction notices asking for an explanation and information on the source of the cash from the taxpayer, adds Jain.

“(The rules are) an effort by the government to combat the accumulation of black money and will help it in keeping a check on the circulation of cash in the economy. This will help the government track suspicious cash transactions in bank accounts that earlier went untapped due to the non-availability of PAN and conduct inquiries wherever required,” says Rahul Charkha, partner at Economic Laws Practice.

Eventually, these rules will help in growing the taxpayer base. “The government has constantly been striving to increase its taxpayer base to be able to bring people who may be entering into large transactions but do not hold a PAN under the tax net,” says Shailesh Kumar, Partner at Nangia & Co LLP.

Quoting PAN or Aadhaar while executing high-value transactions will compel the depositor to file an income tax return, or face the wrath of the taxman. “Once such a person quotes the PAN it will be easier for the tax authorities to track transactions. It may eventually become difficult when a person tries to avoid filing a return of income,” said Kumar.

In the absence of a PAN or Aadhaar, “a depositor must apply for these at least 7 days before he wants to do the transactions, as prescribed in the new rules”.

Also read: All you need to know about filing updated tax returns 

Responsibility with both taxpayer and bank

The CBDT notification makes it clear that the onus of ensuring that the rule is being followed depends on both the account holder as well as institutions such as banks and post offices.

However, the circular will also increase the clerical workload of banks and post offices. “Banks and post-office need to report the PAN and Aadhaar of the depositor in a prescribed format, including demographic and biometric information, to the Principal Director General of Income Tax (Systems),” says Jain.

PAN already mandatory for several transactions

It is mandatory to quote PAN to file an income tax return or in order to initiate any correspondence with the income tax authorities. Besides that, it is also compulsory to quote PAN in various other financial transactions. For instance, PAN is required to open a bank or demat account or avail a credit or debit card. Even when investing above Rs 50,000 in mutual funds, debentures or bonds, furnishing PAN details is mandatory. Similarly, payment of an amount aggregating to more than Rs 50,000 in a financial year as life insurance premium to an insurer also needs a PAN.

You also need to quote the PAN for deposits of cash exceeding Rs 50,000 during any one day or a time deposit (fixed deposit) of amount exceeding Rs 50,000 or aggregating to more than Rs 5 lakh during a financial year with a banking company or a co-operative bank, a post office or a non-banking financial company.

One also needs to mention the PAN at the time of selling or purchasing a motor vehicle or vehicle other than two wheelers. It also has to be quoted during payment in cash of an amount exceeding Rs 50,000 to a hotel or restaurant or for travel to any foreign country or payment for purchase of any foreign currency at any one time.

In some of these transactions, the Aadhaar number can be quoted if the PAN is not available. However, not mentioning or providing PAN or Aadhaar wherever mandatory can lead to a notice and penalty.



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Ashwini Kumar Sharma
first published: May 13, 2022 11:31 am
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