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.

Is PAN-Aadhaar Linking Mandatory for NRIs?

No.

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.

What is an Inoperative PAN?

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.

What Happens if Your PAN is Inoperative?

Having an inoperative PAN can cause issues for NRIs with investments, loans, and other dealings in India. Some of these problems are:

Mutual fund and stock investments

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.

Income tax filing

With an inoperative PAN, you cannot claim tax refunds.

TDS certificate

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.

Opening new bank accounts

You cannot open a newbank account in India with an inoperative PAN card.

Applying for a loan

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.

Here’s What You Can Do to Your 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:

Change your residential status with the Income Tax 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.

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Here’s the list of documents you need to submit:

• Self-attested PAN Card copy

And any of the following documents to confirm your NRI status:

• Passport with a valid visa
• Person of Indian Origin (PIO) card issued by the Government of India or
• Overseas Citizen of India (OCI) card issued by the Government of India
• The tax department will update your status upon document verification and successful processing.

Apply for an Aadhaar Card

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.

If you already have an Aadhaar card

You can link your PAN and Aadhaar by paying a penalty of Rs 1,000 to activate your PAN.

At a glance

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

PAN-Aadhaar Linking for NRIs - Frequently Asked Questions (FAQs)

Where can I check the status to know if my PAN has been linked with Aadhaar?

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. 

Is PAN mandatory for NRIs?

PAN is mandatory for those who earn taxable income in India and want to invest in shares, mutual funds, and other schemes.

Do OCI holders need to link Aadhar to PAN?

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. 

For whom is Aadhaar-PAN linkage not compulsory?

Aadhaar-PAN linking does not apply to any individual who is:

• Residing in the States of Assam, Jammu and Kashmir, and Meghalaya
• A non-resident as per the Income-tax Act, 1961
• Of the age of 80 years or more at any time during the previous year
• Not a citizen of India

What will happen if I don't link my Aadhaar and PAN?

Your PAN will become inoperative.