June 16th, 2017
The government has issued new regulations through a revenue department notification. The rules expand the purview of Aadhaar, which is a 12-digit identity number with biometric data currently enrolled by over 99% of Indians aged 18 and above.
The new regulations include the following provisions:
- Aadhaar card compulsory for opening a new bank account;
- Aadhaar card compulsory for financial transactions above Rs 50,000;
- Existing bank accounts will become invalid if account holders don’t submit their Aadhaar ID by the end of this year.
In this year’s Budget, the government mandated the seeding of Aadhaar with a citizen’s Permanent Account Number (PAN) to prevent individuals exploiting multiple PANs to evade taxes.
The notification, which was issued amending the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, mandated the quoting of Aadhaar along with PAN or Form 60 by individuals, companies and partnership firms for all financial transactions of Rs 50,000 and above.
Furthermore, the amendment sought to tighten the rules for small accounts that can be opened without having officially valid KYC documents by stating that such accounts (which can have maximum deposit of Rs 50,000) can only be opened at bank branches which have core banking solutions.
The revenue department notification read: “The small account shall be monitored and when there is a suspicion of money laundering or financing of terrorism or other high risk scenarios, the identity of claim shall be established through the production of official valid documents.”
Additionally, from today if a person applying for a bank account does not have an Aadhaar card they will be required to submit proof of application for Aadhaar and submit their Aadhaar number within six months of opening of bank account.
Commenting on the development, Nangia & Co Managing Partner Rakesh Nangia was quoted by Bloomberg Quint as saying, “With the amendment, obtaining Aadhaar and PAN have gained paramount importance, since the banks are now required to report Aadhaar and PAN in respect of each of its clients’ at the time of account opening and in case of existing accounts at the time of making transactions worth Rs 50,000 or more.”
The new rules come in light of renewed controversy surrounding the constitutional validity of indirectly mandating Aadhaar, disagreement between the government and the Supreme Court over Aadhaar’s expansion, cybersecurity concerns, and potential for abuse of Aadhaar data by governmental and foreign institutions.