PAN and Aadhaar in tax processes: linking, why PAN is needed, and higher TDS without it

The Permanent Account Number (PAN) is a ten-character alphanumeric identifier issued by the Income Tax Department. It is not just a card in your wallet — it is the key that links every tax payment, every TDS credit, every refund, and every return you file into one coherent record. Without PAN, the tax system cannot identify you, and the consequences are immediate and expensive.

Why PAN is mandatory for financial transactions

Section 139A of the Income Tax Act makes it mandatory to quote PAN when:

• Filing an income tax return.
• Making or receiving payments above specified thresholds (e.g., cash payments above ₹2 lakh, property transactions).
• Opening a bank account, demat account, or applying for a credit card.
• Receiving salary or any other income on which TDS is deductible.
• Buying mutual funds, shares, or other securities.
• Paying advance tax, self-assessment tax, or any tax to the government.

In short, PAN is required for almost every financial interaction that crosses a modest threshold or involves tax. The Income Tax Act allows the department to prescribe new transactions requiring PAN by notification, and the list has only grown over the years.

What happens if you do not provide PAN

If you fail to provide your PAN when receiving a payment on which TDS applies, the deductor is required by law to deduct TDS at a much higher rate. Specifically:

• TDS is deducted at the higher of: (a) the rate specified in the relevant section, or (b) at the rate of 20%.
• In practice, this usually means 20%, which is significantly higher than the standard rates of 2%, 5%, or 10% that apply when PAN is provided.

This is not a penalty in the strict sense — it is a deterrent. The Income Tax Act assumes that someone who will not furnish PAN may be trying to hide income, so it collects more tax upfront. You can still claim credit for the entire TDS when you file your return, but your cash flow takes a hit, and you must wait for the refund.

Example: professional fees with and without PAN

Suppose a company pays you ₹1,00,000 for consulting work (Section 194J):

• With PAN: TDS at 10% → ₹10,000 deducted, you receive ₹90,000.
• Without PAN: TDS at 20% → ₹20,000 deducted, you receive ₹80,000.

The extra ₹10,000 is not lost forever — it will be refunded when you file your ITR — but you bear the working capital cost until then.

The PAN-Aadhaar linking mandate

Since 1st July 2017, the Income Tax Act requires every person who holds a PAN and is eligible for an Aadhaar number to link the two. The deadline has been extended multiple times, but the requirement stands: an unlinked PAN becomes inoperative after the due date notified by the government.

An inoperative PAN means:

• You cannot file an income tax return.
• Refunds are not processed.
• Higher TDS is deducted (as if you furnished no PAN).
• You cannot conduct many financial transactions that require a valid PAN.

The link is a one-time process. You can do it online through the Income Tax e-Filing portal or by sending an SMS. Once linked, the two remain connected unless you request de-linking for a valid reason (which is rare).

How to check if your PAN and Aadhaar are linked

The Income Tax Department provides a simple online service:

1. Visit the Income Tax e-Filing portal (eportal.incometax.gov.in).
2. Go to 'Quick Links' → 'Link Aadhaar Status'.
3. Enter your PAN and Aadhaar number.
4. The portal will confirm if they are linked or not.

You can also check via SMS or by logging into your e-Filing account. If the link has not been done, the same portal lets you submit the link request instantly.

PAN for minors and non-residents

Minors who have taxable income (for example, from child artists, inheritance, or investments) must have a PAN and file returns in their own name (signed by a parent or guardian). The PAN-Aadhaar link applies to minors as well, though the process uses the parent's Aadhaar for verification until the child turns eighteen and gets their own.

Non-resident Indians (NRIs) and foreign nationals can obtain a PAN without an Aadhaar by submitting alternative identity and address proof. The PAN-Aadhaar link is not mandatory for those who are not eligible for Aadhaar.

PAN is permanent, portable, and non-transferable. It follows you across jobs, cities, and decades. Once issued, it does not expire, and you never need to apply again.

Key takeaways

• PAN is mandatory for almost every financial transaction above a threshold and for all income tax filings.
• Failing to provide PAN when receiving income results in TDS at 20% or the rate in the Act, whichever is higher.
• PAN must be linked to Aadhaar; an inoperative PAN blocks refunds, ITR filing, and many transactions.
• Check your PAN-Aadhaar link status on the e-Filing portal and link them if you have not already.
• PAN is a lifetime identifier — once issued, it never expires.

Official sources

This explainer is based on official and primary sources. Always confirm figures and dates on these before acting:

• Income Tax e-Filing portal
• Income Tax Department — incometax.gov.in
• Central Board of Direct Taxes (CBDT), Department of Revenue
• Income Tax Act & Rules — incometaxindia.gov.in

Reviewed: October 2026. Tax rules change — verify the current financial year and assessment year before you rely on any figure.

This is general educational information for Indian taxpayers, not personalised tax, legal or financial advice. Union of Taxpayers is an independent platform and not a government body. Consider a qualified professional for your specific situation.