In recent years, a growing number of Indian citizens have opted to surrender their Indian citizenship in favour of acquiring citizenship in other countries like the United States, Canada, the United Kingdom, Australia, and several Gulf nations. This shift, while often driven by better career opportunities, lifestyle preferences, or long-term settlement plans, brings with it several compliance-related challenges, particularly concerning their Indian documentation.
One of the most overlooked yet crucial documents in this regard is the Permanent Account Number (PAN). Even after becoming a Non-Resident Indian (NRI), individuals generally continue to hold a PAN for various reasons, such as property ownership in India, stock investments, or tax compliance.
However, a change in citizenship mandates a corresponding update in the PAN database, especially to avoid legal and financial complications. Unfortunately, this is not as straightforward as it sounds. Let’s explore why this change is necessary and the issues NRIs are currently facing.
Why Is Updating Citizenship in PAN So Important?
When an individual surrenders their Indian citizenship, they are no longer classified as a resident Indian under the Indian Income Tax Act. If the PAN still reflects their previous Indian citizenship, several compliance mismatches may occur, particularly with the Aadhaar linkage, leading to serious repercussions.
One of the most common complaints by NRIs is that their PAN becomes inoperative due to non-linking with Aadhaar. While Aadhar is not mandatory for NRIs, the PAN database doesn’t automatically recognise a person as non-resident unless it is updated officially. The result is that their PAN status is marked as inoperative, even though it is technically active.
This discrepancy leads to a series of cascading issues, which can significantly affect the financial and administrative lives of NRIs.
Common Issues Faced by NRIs Due to Inoperative PAN
1. Frozen Financial Transactions
An inoperative PAN means the individual cannot engage in financial activities that require KYC (Know Your Customer) compliance, such as:
- Opening or operating bank accounts
- Investing in mutual funds
- Starting Systematic Investment Plans (SIPs)
- Purchasing or selling property in India
Banks and other financial institutions generally deny transactions without an active PAN, bringing important financial decisions to a halt.
2. Higher TDS and TCS Rates
As per Sections 206AA and 206CC of the Income Tax Act, failure to furnish an operative PAN triggers higher rates of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). This results in unnecessary financial outflows, especially in large transactions such as property sales, dividend income, or interest from deposits.
3. Blocked Tax Refunds
Even if the NRI files their Income Tax Return (ITR) using an inoperative PAN, refunds are held back, including the interest on those refunds. These funds often hold significant value for NRIs, especially when dealing with double taxation issues or refund claims from past years.
4. Complications in Filing ITR
Filing returns with an inoperative PAN is not technically impossible but introduces multiple hurdles:
- Higher TDS calculations
- Difficulty in validating ITRs
- Delays in processing
- Potential for non-compliance notices
NRIs often end up facing notices from the Income Tax Department (ITD) due to misclassification or incorrect data.
5. Administrative Challenges
Living abroad limits the NRIs’ ability to resolve these issues in person. Dealing with Indian authorities remotely through emails or portals proves extremely difficult when:
- Officials don’t respond
- There is no single-window resolution system
- Complex processes require repeated document submissions
The Process to Reactivate PAN for NRIs
Here is the process to update their residency and citizenship status in the PAN database and reactivate their PAN:
Step 1: Identify Jurisdictional Assessing Officer (JAO)
Visit the official e-filing portal (www.incometax.gov.in) and navigate to the “Know Your AO” feature. Enter your PAN details to identify the JAO responsible for your PAN.
Step 2: Draft and Send a Request Letter
Prepare a formal request letter addressed to the JAO, explaining your NRI status and requesting an update in the PAN database.
Step 3: Submit Required Documents
Along with your request letter, submit the following:
- Self-attested PAN card copy
- Passport copy with clear entry/exit stamps to prove periods of residence outside India
- Foreign citizenship proof or Tax Identification Number (TIN) from the resident country
- Declaration requesting the change in status
These documents can be sent physically or via email to the JAO’s office, depending on their preference.
Step 4: Await Verification and Status Update
Once the JAO verifies the documents, they are expected to update the PAN’s residential status from “in-operative ” to “operative” and change the citizenship information.
Upon successful update, the PAN becomes operative again, resolving the Aadhaar linkage issue and avoiding the need to link Aadhaar entirely.
The Ground Reality: Bureaucratic Delays and Non-Responsiveness
Although the process appears clear on paper, NRIs often face substantial difficulties in its execution.
1. Emails Go Unanswered
Numerous NRIs have reported that they sent all required documents to their JAO via email but never received an acknowledgment, let alone a resolution.
“We have been informed by many NRIs that they emailed their assessing officers several times but got no reply. Eventually, they had to approach tax consultants to help change the citizenship in PAN.”
2. No Phone Numbers Available
Helpline numbers usually redirect NRIs to contact their respective JAO. However, no direct contact numbers of the JAO are listed publicly, creating a dead end in communication.
3. Months-Long Delays
Even when NRIs engage professional tax consultants or chartered accountants, the process often extends beyond the expected 30-day period. In some cases, it has taken 3–6 months to resolve the issue due to lack of follow-up mechanisms.
Why the System Needs Reform
Given the increasing number of Indian expatriates giving up their Indian citizenship, the ITD must rethink and reform the current procedure. The present system, which depends heavily on JAOs, has created bottlenecks due to:
- Limited resources
- Lack of accountability
- Absence of a digital status tracking mechanism
- No escalation or grievance redressal framework
Final Words
Updating citizenship and residency status in PAN is no longer a trivial administrative task, it is a critical compliance requirement for NRIs. An inoperative PAN leads to blocked refunds, higher taxes, and administrative hassles that can snowball into major financial and legal issues.
Despite the prescribed procedures, the current system is heavily manual, bureaucratic, and often unresponsive. Many NRIs have no choice but to rely on tax professionals to handle this process, which itself is riddled with long delays and lack of clarity.
As India continues to engage its global diaspora, modernising this process is essential. An automated, transparent, and embassy-integrated solution is the need of the hour to support NRIs who want to stay compliant with Indian tax laws.
Are you facing difficulties with your PAN as an NRI? Share your experience with us.
