AADHAAR-PAN LINK MAY HELP CURB TAX EVASION

ment to cure the problem of tax evasion and black money completely. The petitioners’ argument in this respect can be considered to be partially correct, but not strong enough to discard this step by the government.”

Section 139AA of the Income Tax Act, 1961, introduced by the Finance Act, 2017, made it mandatory for taxpayers to provide their Aadhaar card details along with their PAN card, but this was challenged by petitioners in the Supreme Court on various grounds, for which hearing started in April 2017. Earlier this month, the SC exempted from the provision’s ambit those who have enrolled for Aadhaar, but have not received their cards yet. A bench of Justices A.K. Sikri and Ashok Bhushan advised Parliament to “tone down” Section 139AA. The court stayed the invalidation of PAN cards and restricting people from filing income tax returns as a way of penalty, reflecting that it would have “very severe consequences”.

The Centre had defended its stance, explaining that fake PAN cards in the names of firms or fictitious persons as directors or shareholders, are being used to enter into transactions by shell companies. The Centre had also said that multiple PAN cards belonging to the same individual and PAN cards in the name of fictitious individuals are common methods of money laundering, tax evasion, and creation and channelling of black money. As Aadhaar is based on biometric identification, linking the same with the PAN database shall result in weeding out forged transactions arising out of multiple PAN card usage by a single taxpayer. The Apex Court had also acknowledged that 11.35 lakh cases of duplicate PAN or fraudulent PAN cards had been detected.

Dr Suresh Surana, founder, RSM Astute Consulting group, said, “While this step of linking Aadhaar with PAN would not weed out tax evasion completely, it would definitely reduce tax evasion by taking out duplicate or multiple PANs circulating and being used for various transactions.”

Nonetheless, a common argument made by petitioners in several cases against Aadhaar usage is about the lack of privacy laws to safeguard data collected under the Aadhaar scheme. Surana said, “Under the Aadhaar card scheme, Government of India is collecting and compiling both the demographic and biometric data (eye scan and finger prints) of its citizens to be used for various purposes. Due to the lack of privacy safeguards in India (please note that the social security data in the US is protected by the Privacy Act) and the fact that the responsibility of collecting the data has been outsourced to private agencies, it is feared by many that their personal and private data would be disclosed, easy to tamper with and could be prone to misuse, thus violating the right to privacy of the aggrieved individuals.”

Kumar said, “Aadhaar threatening the privacy of individuals can be said to be a subjective issue. It may not be a privacy issue for an individual who was earlier suffering from corruption and malpractices in PDS and other government benefit schemes, and who voluntarily wishes to enrol for such schemes, as it will entitle him to receive the benefits. At the same time, another individual, who considers it as another compliance burden and is not willing to obtain Aadhaar, may consider it as a threat to his privacy. In our view, an individual who is the citizen of a state is bound to follow various rules and laws enacted for the administration of the state and is required to provide his personal information at various places in different forms and manner, be it issuance of a passport or income tax registration. Merely because the Aadhaar Act requires data of biometric/iris scan additionally, cannot be considered to be a threat to the privacy of the individual.”

K.K. Bansal, owner, TaxconsultantsIndia.com, said, “It will be difficult to decide that a person is not making a fake statement that he/she does not own Aadhaar, which is why there needs to be additional reinforcements like using OTP (One Time Password) while buying a car based on a PAN card, which, in turn, is linked to an Aadhaar number—the taxman will get all details of high-value transactions.”

The combination of bank accounts, Aadhaar and PAN is being seen as a “formidable force”, which will be able to help curb tax evasion significantly, if not in entirely. Meanwhile, petitioners in the court continue to emphasise that non-compliance of this combination should not result in hindrance in ease of doing business.