Emboldened by the Supreme Court order on linking of Aadhaar for filing income tax returns, the government has now made quoting of biometric identity number mandatory for opening of bank accounts as well as for any financial transaction of Rs 50,000 or more. Existing bank account holders have been given time till December 31, 2017 to furnish their Aadhaar number failing which the accounts would be frozen.
The finance ministry has issued the notification in this regard amending the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. It mandates individuals, companies and partnership firms to quote their Aadhaar along with PAN or Form 60 by individuals, companies and partnership firms for all financial transactions of Rs 50,000 or above. The change in rules has come in effect from June 1. Till now, the PMLA Rules required only providing PAN number or Form 60 to banks while opening of accounts or for high value transactions.
After June 1 if a person does not have an Aadhaar number at the time of opening a bank account he has to furnish proof of application of enrolment for Aadhaar and submit the Aadhaar number to the bank within six months of opening of the bank account. The move is in line with the government's attempt to tighten banking transaction norms to curb black money and check terror financing. It is also aimed at curbing tax evasion.
Tightening the rules for small accounts, which can be opened without having officially valid KYC documents, the finance ministry notification said that such accounts could be opened only at bank branches which have core banking solution. The maximum limit of deposits for these accounts is currently Rs 50,000.
"In case the client, eligible to be enrolled for Aadhaar and obtain a PAN... does not submit the Aadhaar number or the PAN at the time of commencement of an account based relationship with a reporting entity, the client shall submit the same within a period of 6 months from the date of the commencement of the account based relationship," the gazette notification said.
"Provided that the clients... Already having an account based relationship with reporting entities prior to date of this notification, the client shall submit the Aadhaar number and PAN by December 31, 2017," it further said.
In its bid to move to digital economy and eliminate the menace of black money, the Centre has taken several policy steps in the last two years including mandatory quoting PAN for filing income tax return. The government in Budget 2017 mandated seeding of Aadhaar number with Permanent Account Number (PAN). This was aimed at stopping individuals from using multiple PANs to evade taxes.
The government had earlier inserted section 139AA(1) in the Income Tax Act,1961 to make it mandatory quoting of Aadhaar/Enrolment ID of Aadhaar application form, for filing of return of income and for making an application for allotment of PAN with effect from 1st July, 2017.
This was challenged in the apex court but the Supreme Court earlier this month upheld government decision. It found the section 139AA of the Income Tax Act, 1961 as constitutionally valid. “Parliament was fully competent to enact Section 139AA of the Act and its authority to make this law was not diluted by the orders of this Court.” the SC said in its order.
Accordingly, anyone who has been allotted permanent account number as on July 1, 2017 and who has Aadhaar number or is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to income tax authorities for the purpose of linking PAN with Aadhaar. It, however, granted partial relief to those do not have Aadhaar saying their PAN will not be cancelled.
Meanwhile, the PMLA rules amendment has said that small accounts with deposit limit of Rs 50,000 can be opened at a branch where it is possible to manually monitor and ensure that foreign remittance are not credited to such account. Such small account shall remain operational initially for a period of 12 months and thereafter for a similar period if the account holder provides evidence that he or she has applied for officially valid identification documents.
"The small account shall be monitored and when there is a suspicion of money laundering or financing of terrorism or other high risk scenarios, the identity of claim shall be established through the production of official valid documents," the notification said.
Commenting on the development, Nangia & Co managing partner Rakesh Nangia said, "With the amendment, obtaining Aadhaar and PAN have gained paramount importance, since the banks are now required to report Aadhaar and PAN in respect of each of its clients' at the time of account opening and in case of existing accounts at the time of making transactions worth Rs 50,000 or more".
The Prevention of Money Laundering Act (PMLA) was enacted in 2003 with the aim to combat money laundering and generation of black money. The rules under it obligates banks, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information to Financial Intelligence Unit of India (FIU-IND).
Under the rule 9 of the Act, every reporting entity shall at the time of commencement of an account-based relationship, identify its clients, verify their identity and obtain information on the purpose and intended nature of the business relationship. The government has increasingly been making it mandatory to quote the biometric Aadhaar number for services offered by it and for claiming subsidy. It has already made it a requirement for taking free LPG connection for under Pradhan Mantri Ujjwala Yojana, and EPF benefits among others. It expects residents to quote the number for other benefit schemes also such as MNREGA.
In coming months, quoting of Aadhaar could also be made mandatory for rail and air travel besides health services like OPD at government hospitals.
