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How linking Aadhaar with PAN affects banking, mutual funds, income tax

Aadhaar linkage could improve access to several financial services

How linking Aadhaar with PAN affects banking, mutual funds, income tax

The Facilitator

Even as the government battles out in court the validity of making Aadhaar mandatory for welfare schemes, it is fast-tracking the process of seeding bank accounts with Aadhaar. Brushing aside all reservations on this account, the Reserve Bank of India clarified on October 21 that linking of bank accounts with Aadhaar is mandatory under the Prevention of Money Laundering (Maintenance of Records) Second Amendment Rules, 2017. At last count, 750 million bank accounts had been linked to Aadhaar. The deadline is December 31, 2017.

Many people are apprehensive about linking Aadhaar with bank accounts. To allay their fears, Money Today takes a peek into how syncing Aadhaar with bank accounts/PAN will improve the delivery of financial services.


Banks have been using Aadhaar to offer services such as opening accounts at the doortstep. Aadhaar will also help banks weed out benami accounts, say bankers. "The biggest challenge financial institutions face is identifying the customer. This is especially true while taking deposits, wherein banks are required to ensure that no money laundering is happening vide accounts opened using fraudulent documents," says Ritesh Raj Saxena, Head, Savings, Digital & Payments Business, IndusInd Bank, which uses iris-based Aadhaar eKYC for onboarding customers. The bank says it has also enabled customers of more than 20,000 fair price shops to procure their ration using "Aadhaar Pay", which involves paying directly from a linked bank account.

"Customers can look forward to operating ATMs and lockers, besides making retail purchases, using biometrics. With Aadhaar linkage at PoS, ATM networks and online banking channels, customers will not have to remember passwords," says Saxena.

All banking services will be transferrable to the ATM channel using Aadhaar. "More than 60,000 ATMs deployed between 2012 and 2017 are biometric-enabled. Hence, all branch transactions, including money transfer, utility bill payments, loan application processing, mobile top-up and wallet recharges, can be done via ATMs," says Thyagarajan Seshadri, President, Banking, at Electronic Payment and Services (P). ATMs can offer more services than a branch and still be courteous to customers, he adds.

The time taken to issue insurance policies and settle claims will also come down. "The linking of Aadhaar/PAN to bank accounts will ease the CKYC process, firm up the identity of the customer and to that extent ease claim processing," says Mahendra Tripathi, Head, Compliance, Legal & CS, SBI General Insurance.

"Linkage of Aadhaar and PAN will help us in early claim settlement. Currently, we struggle to establish the identity of the claimant. But with online integration, quoting Aadhaar number in the proposal form would be enough," says Anuj Mathur, Chief Executive Officer of Canara HSBC OBC Life. "For the beneficiary, when he or she submits the Aadhaar card, we will also be also to pull out bank details because things are going to be linked . So in terms of crediting the money it should be easier," he says.

Mutual Funds

Asset management companies too will be able to reap the benefits of Aadhaar. The reason is simple. Many people don't have PAN, which was hitherto mandatory for investing in mutual funds. Now, with Aadhaar and e-KYC, they, too, will be able to join the mutual fund bandwagon, says Srinivas Jain, Executive Director and Chief Marketing Officer, SBI Funds Management.

Since May 2017, SBI Mutual Fund has been able to add more than 25,000 first-time investors through digital tools using Aadhaar-based login. "The entire onboarding experience, which would have taken days, has been fast-tracked. Mutual funds can now penetrate deeper through Aadhaar. The issue of legibility of forms has also been addressed as data can now be pulled out from the centralised KYC database and verified and used," says Jain. In the future, Aadhaar would also help fund houses gauge the exact number of investors and avoid duplication of folios, unless necessary for nomination or goal-segregation purpose.

Income Tax

Hiding from income tax officials would become difficult after the linkage of bank account with Aadhaar. "Since PAN, Aadhaar and bank accounts are linked, whether premium and covers opted for are in line with the individual's income can be easily detected by I-T officials. Cash payments for insurance would be passe," says Balwant Jain, a Mumbai-based chartered accountant. However, this also poses a threat. Paras Savla, a chartered accountant, warns: "Security risks apart, one needs to be careful while filing paper returns - which are allowed for certain category of tax payers such as super senior citizens - as details such as date of birth, Aadhaar, bank details are all mentioned and linked to one another. Getting a new SIM isn't too difficult for fraudsters willing to dupe."

A case in point is that of Kozhikode-based Shaswat Gupta, who was duped of Rs. 1.3 lakh from his savings bank account and fixed deposits after he linked his phone SIM to Aadhaar. So, be careful, and do not take help in linking Aadhaar with phone or bank from any person apart from bank officials and office staff. Question and cross question if you sniff any nuisance.

The precautions include locking your biometrics (fingerprints, iris scan) and a 4-digit passcode using the mAadhaar app offered by the Unique Identification Authority of India, which issues Aadhaar. Keep track of SMSes that indicate your Aadhaar account has been opened as a one-time password, or OTP, would be required to open the data too. Avoid sharing OTPs with unknown people.

Khayati Dharamsi is a feelance writer

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