Can you now use Aadhaar in place of your PAN card? In her Budget speech last Friday, Finance Minister Nirmala Sitharaman said that she was proposing to make Aadhaar, the 12-digit unique biometric identity assigned to residents, interchangeable with PAN, the Permanent Account Number assigned to individuals and entities that pay tax in the country.

The move comes after several years of attempts by the government to force citizens into linking their PAN card and Aadhaar numbers, which the state claims makes it easier to weed out those evading taxes. Despite those efforts, Sitharaman has now proposed to make Aadhaar and PAN “interchangeable”.

What does that mean?

Here is what Sitharaman said in the Budget speech:

“Mr Speaker, Sir, more than 120 Crore Indians now have Aadhaar. Therefore, for ease and convenience of tax payers, I propose to make PAN and Aadhaar interchangeable and allow those who do not have PAN to file Income Tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote PAN.” 

So are Aadhaar and PAN interchangeable?

No. Or at least, not fully.

First, a reminder of what these two identification documents are.

Aadhaar is a 12-digit number that is attached to your biometric data, and can be used for just about any sort of identification or authentication. Though it was initially envisioned as a tool to ease the delivery of welfare benefits, it has grown to become a catch-all identity document that can be used for any interaction, whether with the state or a private organisation.

PAN cards have a much more specific use. These are 10-digit Permanent Account Numbers generated by the Income Tax Department, meant to be quoted in significant financial transactions that might attract tax scrutiny.

What Sitharaman proposed was letting Aadhaar be used in place of PAN, but not vice-versa. In other words, you can quote Aadhaar for financial transactions and while filing your income tax returns. But you cannot use PAN in place of Aadhaar for welfare services or any other situation in which it is mandatory.

Does that mean I don’t have to link Aadhaar and PAN?

No. PAN-Aadhaar linking is still mandatory, and you still need to quote your Aadhaar number while filing Income Tax returns. The deadline for PAN-Aadhaar linking is September 30, 2019. If your PAN is not linked to an Aadhaar number by that date, it is at risk of becoming “inoperative”. Earlier, the law said that PANs that are not linked to Aadhaar would become invalid, but in this year’s Finance Bill, the government has altered the language to simply say they would be inoperative.

Regardless, it is mandatory to both quote Aadhaar in your Income Tax Returns and to link your PAN to Aadhaar by September 30, 2019.

This requirement has been challenged by activists opposed to the mandate to use Aadhaar, who believe it is unconstitutional and petitioned for a review of the Supreme Court decision permitting voluntary linking of PAN-Aadhaar. The Rethink Aadhaar campaign has also drafted a letter for taxpayers to send to the Central Board of Direct Taxes protesting the mandatory requirement of Aadhaar quoting and linking.

Why do it then?

The proposal is not aimed at those who do not want to link Aadhaar and PAN, which the government still considers mandatory. Instead, it is intended at those who have Aadhaar but do not yet have a PAN card.

More than 1.2 billion people, that is 120 crore, have Aadhaar. However, only about 420 million people, 42 crore, have PAN cards.

This limited interchangeability is primarily aimed at those masses who have Aadhaar but don’t have PAN cards. According to the Central Board of Direct Taxes Chairman Pramod Chandra Mody, anyone who files Income Tax Returns quoting an Aadhaar that is not linked to PAN will be assigned a new Permanent Account Number.

As Revenue Secretary Ajay Bhushan Pandey put it, “Some people may prefer to use Aadhaar and some may prefer PAN. But at the backend for every Aadhaar there will be a PAN and for every PAN there will be an Aadhaar. The PAN base grows indirectly from 22 crore to 120 crore because for every PAN, Aadhaar has become equivalent or interchangeable.”

For those who do have both Aadhaar and PAN, and have linked both, it simply becomes a matter of convenience. For Income Tax Returns, or transactions over a certain amount, they can either quote Aadhaar or PAN.

Will PAN cards be phased out?

It doesn’t seem likely, at the moment at least. “I don’t see any need for phasing it out,” said Pandey, the Revenue Secretary. “It is the people’s choice. After all, there are people who are more comfortable using the PAN card.”