For years, the government has grappled with the menace of multiple PAN numbers, which fraudsters have been using to fragment and conceal their real income. By linking the Aadhaar card with the PAN card, the government, in one swift move, has made multiple PAN cards redundant.
The Prevention of Money Laundering
(Maintenance of Records) Rules, 2005, has been amended according to a Gazette notification dated June 1, 2017, and it now makes it mandatory for trading account holders to submit their Aadhaar number by December 31, 2017.
In case of a failure to submit the documents within the aforesaid time limit, the account shall cease to be operational till the time Aadhaar number is submitted by the client.
When the government links the 12-digit Aadhaar card with the Permanent Account Number (PAN) card by December 31, 2017, it would have achieved the unthinkable: Getting rid of the menace of duplicate PAN cards.
For years, the government has grappled with the menace of multiple PAN numbers, which fraudsters have been using to fragment and conceal their real income. This issue found mention in a 2011 CAG report, which made the government consider issuing biometric PAN cards to taxpayers across the country. There was no need to reinvent the wheel.
By linking the Aadhaar card with the PAN card, the government, in one swift move, has made multiple PAN cards redundant as it is not possible to have multiple Aadhaar cards. With this biometric verified identification, it is not possible for any person to have multiple Aadhaar numbers and by linking Aadhaar to PAN numbers, the government is making sure that one person can hold one PAN card only.
This move is one of the several examples of how the Modi government has creatively used the government's pre-existing data bases to plug loopholes and get more bang for the buck.
The moment the trader registers his PAN card with the trading account, the bonafides of his PAN card are established. As long-term capital gains from the capital markets are exempted from income tax, such a double check would ensure that the system is not misused by unscrupulous people. This double check would allow the account holder to truly enjoy the fruits of his tax-free long-term investment income.
The government can then question all such Demat
accounts or trading accounts with unmatched Aadhaar cards. This would unearth benami
accounts and shares, which augurs well for the nation.
This step would prevent the laundering of dirty money. If the account holder is not able to produce an Aadhaar number for his trading account, for which he has a PAN card, his account will be suspended. Which means that all those multiple PAN cards can’t be used for the capital markets. They would be useless as these accounts would not be operative.
The abolition of multiple PAN cards would mean that you can’t use the capital markets as a laundry machine. Money can’t escape the tax net and tax will have to be paid.
Aadhaar number for your mutual fund investments too
All mutual fund investors too would have to share their Aadhaar card with their mutual fund before December 31, 2017. Investors would benefit from such sharing as they can continue their investments unfettered.
Multiple PAN cards were also suspected to be misused by unscrupulous people to get loans from various banks and financial institutions under different PANs and then defaulting on these loans. Aadhaar-verified PANs would help in checking this malpractice. If a person defaults once, he will be locked out of the system for future loans. The culprit would not be able to get a new PAN card and the new loan.
Currently, the Aadhaar card is the primary tool for disbursement of any government subsidies by Direct Benefits Transfer. The subsidy goes directly to the intended recipient, which promotes transparency and good governance. This results in savings as the subsidy is not misused.
Finally, an honest tax payer would not hesitate in sharing his Aadhaar card number with the trading member for his KYC as he has nothing to lose and everything to gain. He would be able to continue to earn his tax-free returns from his trading and investment account.
I believe that in the long run it would help channelise a larger portion of household savings into equity, something that urgently needs to be done.
V K Sharma is Head – PCG & Capital Market Strategy, HDFC Securities
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.