Indian expats in UAE must update PAN status to NRI before filing income tax returns

Indian expats in UAE: Change your PAN status to NRI before filing your next ITR

UAE-based Indian nationals should verify whether their residential status is correctly recorded in India's Permanent Account Number database, particularly before filing an Income Tax Return or conducting significant financial transactions in India.

Although moving abroad does not automatically update the PAN database, the PAN number itself remains unchanged for life. However, personal details and residential status linked to it may require correction to avoid complications.

Why some NRI PANs became inoperative

PAN holders required to link their PAN with Aadhaar but who missed the June 30, 2023 deadline had their PANs made inoperative from July 1, 2023. Non-residents under India's income-tax law are exempt from mandatory PAN-Aadhaar linking, yet some non-resident Indians had their PANs marked inoperative because their non-resident status had not been recorded by the Income Tax Department.

The department stated it mapped NRI status where a taxpayer had filed an ITR as a non-resident in any of the previous three assessment years or had informed the Jurisdictional Assessing Officer. Affected NRIs were asked to submit their residential-status details and supporting documents to the JAO.

Consequences of an inoperative PAN

The Income Tax Department has clarified that an inoperative PAN is not a cancelled PAN. An affected taxpayer can still file an ITR but may face restrictions. The main consequences include:

• Tax refunds and related interest being withheld
• TDS applying at a higher rate
• TCS being collected at a higher rate
• Tax processing and financial transactions facing delays

An NRI may later claim excess TDS through an ITR, subject to tax rules. However, an inoperative PAN could still delay the resulting refund.

Importance of correct status in PAN records

PAN connects Indian tax returns, tax payments, TDS records, Annual Information Statement and communication with the Income Tax Department. It is also commonly required for investments, securities transactions and property deals in India. Banks, brokers and mutual fund companies may use it during Know Your Customer checks.

Updating the Income Tax Department's records does not automatically change the information held by a bank, broker or other institution. NRIs may need to update their KYC status with each organisation separately.

PAN does not determine tax residency

Indian tax residency is calculated separately for each financial year using the applicable day-count, income and other statutory tests. Being employed in the UAE or holding a UAE residence visa does not by itself establish non-resident status for Indian income-tax purposes. Updating the PAN database also does not permanently establish residency for future years.

PAN requirement for India-UAE treaty claims

The India-UAE Double Taxation Avoidance Agreement can provide relief where its conditions are met. PAN alone does not establish eligibility. Depending on the claim, a taxpayer may need a UAE Tax Residency Certificate, Form 10F and other prescribed information. Indian rules also provide limited relief from higher TDS for certain non-residents without PAN when they submit specified identity, address and tax-residency documents.

How to check PAN status

Visit the Income Tax Department's e-filing portal and use the "Verify Your PAN" service. After logging in, check:

• Whether the PAN is operative
• PAN-Aadhaar linking status
• Residential status in your profile
• Residential status used in recent ITRs

If the PAN is operative and the department already recognises you as a non-resident, no correction may be required solely because you live outside India.

Updating NRI status

If your PAN is inoperative because your NRI status was not recorded, contact your JAO. You can locate the officer through the "Know Your AO" service on the tax portal. Submit a request to update your residential status with supporting records. These may include:

• PAN copy
• Passport and relevant travel pages
• UAE residence visa or Emirates ID
• Proof of time spent outside India
• OCI or overseas citizenship documents where applicable

The officer may request further information. The Income Tax Department has not set a standard one-month completion period for every case. NRIs should not rely solely on editing their online profile to restore an inoperative PAN. The department directs affected taxpayers to submit their request to the JAO.