Inoperative PAN holders can now invest in mutual funds due to latest KYC rule changes The KYC Registration Agency (KRA) is required to comply with the latest relief by May 31, 2024
There is good news for investors who were unable to invest in mutual funds because their PAN had become inoperative due to failure to link it with Aadhaar. The Securities and Exchange Board of India (Sebi) has amended the KYC guidelines on May 14, 2024, providing relief to such investors.According to the amended KYC guidelines, Sebi has removed the mandatory requirement of linking PAN and Aadhaar for investors for their KYC status to be shown as "KYC Registered". Earlier, from April 1, 2024, if PAN and Aadhaar had not been linked, then the KYC status of the investor was shown as "On-hold". But now, if the PAN, name and address have been verified by the KYC Registration Agency (KRA), the KYC status will be shown as "KYC Registered" instead of "KYC On-hold". However, to get the status changed to 'KYC Validated' mutual fund investors still have to mandatorily link their PAN and Aadhaar.
Earlier, linking of PAN with Aadhaar was mandatory for both 'KYC registered' and 'KYC Validated' status i.e. KYC status would be 'KYC registered' or 'KYC Validated' depending on various conditions but both the status required PAN-Aadhaar linkage.
According to the amended circular issued by Sebi, "As a part of risk management framework, the KRAs shall verify the following attributes of records of all clients within 2 days of receipt of KYC records: a. Permanent Account Number (PAN), b. Name and c. Address. The records of those clients in respect of which all attributes mentioned in para 96 / 97 above are verified by KRAs with official databases (such as Income Tax Department database on PAN, Aadhaar XML/Digilocker/M-Aadhaar) and PAN-Aadhaar linkage has also been verified as referred to in Rule 114 AAA of the Income Tax Rules, 1962, shall be considered as Validated Records."
Earlier, the KRAs were required to mandatorily verify PAN as well as the PAN-Aadhaar linkage to determine KYC status, depending on the other attributes for KYC such as validation of proof of address, validation of mobile number and email.
A spokesperson of CAMS - a registrar and transfer agent for mutual funds - points out that Sebi has now removed PAN-Aadhaar linking as a mandatory requirement for KYC to become registered. "Vide this change, PANs meeting other KYC attributes where PAN-Aadhaar is not linked can be considered as KYC Registered." Also, now, either the email or mobile have to be validated for KYC compliance (as KYC Registered) against the earlier requirement of both email and mobile having to be validated, the spokesperson adds.
Do remember that as per income tax laws, an individual's PAN becomes inoperative if it is not linked with his/her Aadhaar.
Amol Joshi, Founder, PlanRupee Investment Services, says, "The amended guidelines will allow the inoperative PAN holders to invest in mutual fund schemes. The latest Sebi circular makes PAN-Aadhaar linking mandatory only to get 'KYC Validated' status. If an individual's PAN is inoperative due to non-linking with Aadhaar, they can still invest in mutual fund schemes provided their KYC status is not 'On hold' due to any other reason."
Individuals now face certain consequences if their PAN has become inoperative due to non-linking with Aadhaar. Some of them are:
a) Higher TDS/TCS is deducted/collected from specified payments made to them
b) No income tax refunds are given
c) Cannot file income tax returns
Mario Sylvester Roche, Chief Operating Officer-Domestic Fund Services, KFin Technologies Limited, says, "The new amended rules provide relief to mutual fund investors whose KYC status was 'On-hold' purely because of non-linkage of PAN and Aadhaar. The new guidelines will result in change of their KYC status to 'KYC Registered' now (unless it is 'On-hold' for other reasons as well). This will allow investors to carry out any financial or non-financial transactions in existing mutual fund investments. It will also allow them to invest in new mutual fund houses although only after providing additional documentation."
What are the new KYC status?
As per new KYC guidelines, effective from April 1, 2024, a KYC status can be any one of the following three:a) KYC Validated
b) KYC Registered
c) KYC On-hold
Mutual fund investors having 'KYC Validated' status are not required to do anything. They can continue to invest in any mutual fund seamlessly. Individuals can get 'KYC Validated' status if:
a) Their PAN and Aadhaar are validated by the issuing authority i.e., income tax department and UIDAI respectively,
b) Their PAN-Aadhaar linking is done and
c) Their email and mobile number, if provided are validated.
On the other hand, if the status is 'KYC Registered', then they can continue to invest in the existing folios of mutual funds without providing any additional documents. However, to invest in a mutual fund house where they do not have an existing folio, they would either have to submit a complete set of KYC documents along with the application form for the mutual fund scheme or get their KYC status validated.
A mutual fund investor's KYC status can be 'KYC registered' instead of 'KYC Validated' in the following cases:
a) Where Aadhaar data could not be validated by the issuing authority (UIDAI), but PAN-Aadhaar linkage has been done and email and/or mobile number are validated
b) Where Aadhaar data is validated by the issuing authority (UIDA), but PAN-Aadhaar linkage has not been done and email and/or mobile number are validated
c) Where the other officially valid documents (not Aadhaar) cannot be validated by the issuing authority and email and/or mobile are validated
If the KYC status is 'On-hold' for mutual fund investors, they cannot do any financial and non-financial transactions in existing investments or make new investments. A mutual fund investor' KYC status can be 'On hold' due to following reasons:
a) Where the non-Aadhaar OVDs (Officially Valid Documents) cannot be validated, and email and mobile are not validated.
b) Where a deemed valid document cannot be validated, and email and mobile are not validated.
c) Invalid contact details despite submission of valid documents.
According to the Sebi circular, the amendments must be made in the KRA's systems by May 31, 2024.
This story originally appeared on: India Times - Author:Faqs of Insurances
