‘Investors, MFs to pay penalty of Rs.10,000 for non-linkage of Aadhaar-PAN before Oct 1'

The government may take penal action against investors and mutual fund companies if investors do not link their PAN and Aadhaar before October 1, among other things.

An understanding of the Income Tax Act regulation by KFinTech shows that the government may impose fine of up to Rs.10,000 on investors and mutual fund companies per folio for non-linkage of PAN and Aadhaar.

Here are some key consequences of non-linkage of PAN and Aadhaar according to KFinTech:

1. Penalty of Rs.10,000 per default u/s 272B on such customer/ vendor/ employee for not furnishing, intimating or quoting the PAN
2. Penalty of Rs.10,000 per default on Bank/ Mutual Fund/ Insurance Company / Broker/ company / any other person accepting such PAN
3. KYC status to be nullified
4. Considered as non-compliance to SEBI regulations for maintaining invalid PANs

Also, non-linkage of PAN and Aadhaar will disrupt fresh transactions, SIPs and redemption in mutual funds from October 1, 2021. Similarly, dividend income in mutual funds will be subject to 20% TDS (tax deduction at source).

Sreekanth Nadella, CEO, KFinTech told Cafemutual that most investors have linked their Aadhaar with PAN. “Almost 90% of the total MF folios are fully compliant with this.”

Talking about the possible impact, Nadella said, “Based on our assessment, there are 17 lakh MF accounts, which are yet to link PAN and Aadhaar. At industry level, I don’t think there will be more than 25 lakh such folios. And this number has been declining day-by-day. We have been actively reaching out to all investors requesting them to link PAN and Aadhaar to ensure zero disruption.”

Nadella pointed out that there are some challenges in PAN and Aadhaar linkage which needs to be addressed immediately. He said, “There were instances where investors could not link their PAN and Aadhaar due to mismatch in name. In these cases, we have been insisting such clients to furnish additional documents to avoid any disruption in MF transaction. Another issue is exempt category. For instance, while HUF does not have Aadhaar, people of Sikkim do not have PAN card. Hence, we have requested SEBI to issue list of exempted categories and give more clarity on treatment with such accounts.”

CAMS could not be reached till the time of writing of this article.