I-T dept’s July 21 clarification on inoperative PAN offers little relief to NRIs

Even though NRI’s aren’t taxed in India for their foreign income, they need to file tax returns if they receive interest from bank fixed deposits or savings accounts (non-resident ordinary only), income such as rent from assets in India or by selling assets, shares, redeeming mutual fund units, dividends beyond a limit, business income or consultation fees from India.

The income tax department’s efforts to ease the tax travails of non-resident Indians (NRIs) whose PANs turned inoperative due to a failure to link them to their Aadhaar, seem to have come up short.

NRI tax-payers are finding it difficult to reach out to jurisdictional assessment officers (JAO) for a solution as there is no online mechanism to do so. Then, there are others who have received no response from JAOs.

Post June 30, PANs not linked to Aadhaar rendered inoperative
Many NRIs have been unable to file their income tax returns because of inoperative PANs. On July 21, 2023, however, the I-T department issued a clarification in an attempt to resolve the deadlock.

Also read: Why linking PAN with Aadhaar is important

It asked such NRIs to reach out to their jurisdictional assessing officer (JAO) to update their residential status. “NRIs, who haven’t filed their ITR in the past three assessment years and whose PAN is inoperative can intimate their residential status to the jurisdictional assessing officer (JAO) with supporting documents,” the I-T department had said.

However, there is no online facility to contact the JAOs, leaving them in a lurch. Many are worried that they will miss the July 31 deadline to file returns.  Therefore, despite the I-T department’s ‘solution’, many NRIs have been unable to file their income tax returns for the financial year 2022-23 (assessment year 2023-24).

The PAN-Aadhaar hurdle

The PAN numbers of NRIs who hadn’t updated their residential status with the I-T department, those who had not  linked it with the Aadhaar (although it is not mandatory for NRIs) and those who had not filed ITR in the past three years, turned inoperative after June 30.

Also read: How to file your income tax before July 31. A complete guide

When the issue was raised, the I-T department – with just 10 days to go for the expiry of the July 31 due date - asked NRIs to reach out to  their JAOs. This, experts say, isn’t enough.

Why is the solution not enough?

“NRIs don’t have taxable income every year and they don’t always need to file tax returns. As NRIs are not supposed to possess Aadhaar, linking of PAN is not required for NRIs,” says Karan Batra, Co-founder of tax advisory firm CharteredClub.com.

Also, the notification doesn’t mention whether the taxpayer is supposed to email, call or physically meet the JAO. Reaching out to the JAO – as suggested by CBDT – is easier said than done. “How is someone who is in the USA supposed to reach out to the jurisdictional assessing officer? His JAO could be in Delhi, Bengaluru etc. There are many NRIs who are from smaller cities too,” adds Batra.

Also read: Form 26AS and AIS; the two documents you must check before filing income-tax returns

Mayank Mohanka, Founder Director at TaxAaram India, says, “The intention to offer a solution is great. But at the ground level, there are difficulties such as not receiving a response from the local assessing officer.”

No resolution in sight

With the deadline fast approaching and the tax professionals too tied up, there is hardly any end in sight to the struggles. “I am struggling to pay the taxes.  There are so many hassles. I have wasted too much time trying to resolve the deactivation, the follow ups with the CA placed in different time-zone. Now my CA says that if I don’t file the returns, I will not receive benefits or refunds and the interest on the refund. I am losing sleep over this,” said a Canada-based NRI, who has been trying to file the tax returns since July 4, 2023.

“Since NRIs don’t have an online mechanism to resolve the issue, it is discouraging NRIs from filing the tax returns. Today when resident Indians want to reach out to the assessing officer, an online mechanism is available. Why can’t there be a similar system for NRIs, who have no option to physically meet an officer?” questions Batra.

Do NRIs have to pay tax in India?

Even though NRI’s aren’t taxed in India for their foreign income, they need to file tax returns if they receive interest from bank fixed deposits or savings accounts (non-resident ordinary only), income such as rent from assets in India or by selling assets, shares, redeeming mutual fund units, dividends beyond a limit, business income or consultation fees from India.  Interest from non-residential external (NRE) and foreign currency non-resident accounts is fully exempt from tax. Since these incomes aren’t regular, they aren’t always required to file tax returns. Hence, the income tax department criteria to ascertain a valid PAN too is incorrect.

Filing returns is time-consuming

Apart from helping NRIs reach out to the assessing officer and submit documents, tax professionals are forced to spend additional time updating the necessary details in the profile as mentioned on the income-tax portal.

Ameet Patel, Partner at Manohar Chowdhry and Associates says, “The name, address, email and phone (number) need to be the same in the income tax returns as well as on your profile on the portal. These income-tax profiles haven’t been updated in the case of many NRIs for long. Additionally, there are two passwords needed to verify the returns – one is sent on email and another to the phone. So, in cases where there is a foreign mobile number, the one-time password isn’t being received.”

This is forcing the chartered accountants to use an alternative Indian phone number to receive the passwords. When they use an alternative phone number, the tax-returns and the profile need to be altered again. Trying different combinations is time-consuming and exhausting, say tax professionals.

Inability to verify returns

There have been instances when the e-verification code, which is critical to verify income tax returns, is not received in the case of NRIs. The e-verification code is triggered through an Aadhaar-based system. Alternatively, it can be done using net-banking access. Both the propositions are difficult for NRIs.

“There is no way to receive an e-verification code for NRIs. Digital signatures are costly and have limited validity. As of now, we have been asking the NRIs to sign the documents and physically send them to the Central Processing Centre (CPC), which was the only option nine years ago before online verification was introduced,” says Batra.