Published 9 May 2026
Section 139AA(3) exemption, Notification No. 37/2017, the residential-status update requirement on the e-filing portal, and the practical operation of the inoperative Permanent Account Number for cross-border filers
Taxpayer Brief
Aadhaar, as a service of the Unique Identification Authority of India, is available only to a person who has resided in India for one hundred and eighty-two days or more during the twelve months immediately preceding the date of application -- the definition of 'resident' under clause (v) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. A Non-Resident Indian who lives and works abroad, and a foreign citizen, are by that definition outside the Aadhaar net. Recognising this, sub-section (3) of section 139AA of the Income-tax Act, 1961 read with Central Board of Direct Taxes Notification No. 37 of 2017 dated 11 May 2017 carves out a specific exemption from the Aadhaar quotation requirement for cross-border filers. This article explains who qualifies for the exemption, the procedure to claim it on the e-filing portal, the residential-status update requirement that the Central Board of Direct Taxes added in August 2023, and what to do when the Non-Resident's Permanent Account Number turns inoperative because the Department's records have not been updated.
1. The Section 139AA(3) Exemption
Sub-section (3) of section 139AA empowers the Central Government to notify, in the official gazette, any person or class or classes of persons or any state or part of a state to which the provisions of sub-section (1) and sub-section (2) shall not apply. Notification No. 37 of 2017 dated 11 May 2017 (issued by the Central Board of Direct Taxes) lists the four exempt classes.
Exempt Class | Authority | Definition / Test |
|---|---|---|
Non-Resident as per the Income-tax Act, 1961 | Notification No. 37/2017 | A person who is not resident as per section 6 of the Income-tax Act, 1961 in the relevant previous year |
A person who is not a citizen of India | Notification No. 37/2017 | Foreign nationals; resident foreign nationals (Person of Indian Origin / Overseas Citizen of India card-holders) are also outside the requirement provided they are not Indian citizens |
Super senior citizen aged eighty years or above on the relevant date | Notification No. 37/2017 | Computed at the time of the relevant act -- filing the return, applying for Permanent Account Number |
Resident of the State of Assam, Jammu and Kashmir, or Meghalaya | Notification No. 37/2017 | By reason of historical Aadhaar enrolment infrastructure being limited in these states |
Two distinct definitions of Non-Resident The 'Non-Resident' for Aadhaar Act purposes (less than 182 days in India in the preceding 12 months) and the 'Non-Resident' for Income-tax Act purposes (the section 6 four-limb test on residency) overlap in most cases but are not identical. The section 139AA(3) exemption uses the Income-tax Act definition. A taxpayer who fails the Aadhaar Act resident test (and therefore cannot enrol for Aadhaar even if he wanted to) but qualifies as Resident under the Income-tax Act (returns to India for sufficient days) is in a difficult middle-ground -- this is rare but does occur for frequent travellers in transition years. |
2. How a Non-Resident Indian Files the Return Without Aadhaar
- Log in to the e-filing portal at the Income-tax Department website using the Permanent Account Number.
- Update the residential status under 'Profile' -- select 'Non-Resident' for the relevant assessment year. The update must be made before the return is filed.
- Confirm the foreign country of residence and the date of departure from / return to India where applicable.
- Open the return -- the portal accepts the residential status as Non-Resident and skips the Aadhaar requirement.
- Verify the return through one of the non-Aadhaar modes -- Net Banking Electronic Verification Code (Indian-Rupee bank account), Bank Account Electronic Verification Code (pre-validated Non-Resident External or Non-Resident Ordinary account), Demat Account Electronic Verification Code, Digital Signature Certificate, or physical Income Tax Return Verification Form posted to the Centralized Processing Centre.
3. The August 2023 Residential-Status Update Requirement
Following the 1 July 2023 deadline for Permanent Account Number-Aadhaar linkage, several Non-Resident Indian taxpayers found their Permanent Account Numbers turning inoperative because the Income-tax Department's records still showed them as Resident -- typically because the residential status had been declared correctly in the original Permanent Account Number application but was never refreshed in subsequent years. The Central Board of Direct Taxes addressed this through a public clarification dated 18 August 2023 (released through the Press Information Bureau) and a portal-side mandatory update of residential status under 'Profile'. The Non-Resident Indian assessee or the foreign citizen must update the residential status to 'Non-Resident' to keep the Permanent Account Number out of the inoperative bucket.
Step | Action | Where on the Portal |
|---|---|---|
1 | Log in with Permanent Account Number and password | e-filing portal home page |
2 | Open 'Profile -- My Profile' | Top-right user icon |
3 | Edit 'Residential Status' field | Personal Information section |
4 | Choose 'Non-Resident' or 'Foreign Citizen' as appropriate | Drop-down |
5 | Provide foreign address, country of residence, dates of presence in India | Subsequent fields |
6 | Save and confirm | Acknowledgement displayed; Permanent Account Number flagged as 'Aadhaar-Exempt -- NRI' |
Refresh status every year Residential status can change year to year. A Non-Resident Indian who returns to India during the year and stays beyond the section 6 thresholds becomes a Resident in that year and the section 139AA exemption falls away -- in which case Aadhaar enrolment becomes necessary. Conversely, a Resident who relocates abroad transitions to Non-Resident and can update the status to claim the exemption. Practitioners should review and refresh the residential-status flag at the start of every filing season. |
4. Permanent Account Number Becoming Inoperative for a Non-Resident Indian -- Why and What to Do
The most common reason a Non-Resident Indian's Permanent Account Number turns inoperative is that the residential status flag in the Department's records still shows 'Resident'. The system tries to enforce Permanent Account Number-Aadhaar linkage; finding no linkage, it marks the Permanent Account Number inoperative. The fix is procedural rather than financial -- updating the residential status reverses the inoperative tag, and there is no rupees one thousand re-activation fee for the genuinely Non-Resident Indian filer.
Trigger | Resolution | Whether Rupees One Thousand Fee Applies |
|---|---|---|
Residential status not updated in Department records | Update through 'Profile -- My Profile -- Residential Status' to Non-Resident | No -- exempt class |
Genuinely Resident in the relevant year but Permanent Account Number unlinked | Pay rupees one thousand under Major Head 0021 / Minor Head 500; complete the linkage | Yes |
Foreign citizen Permanent Account Number flagged inoperative | Update Country of Citizenship field to non-India; provide passport copy | No |
Super senior citizen aged 80+ | Update date of birth in Permanent Account Number record (if not already) | No -- exempt class |
The August 2023 clarification The Press Information Bureau release dated 18 August 2023 made clear that the Permanent Account Number of a Non-Resident Indian who has filed a return at any time in the last three years claiming Non-Resident status, or who has updated the residential status on the portal, would not be marked inoperative for failure to link Aadhaar. For Non-Resident Indians whose Permanent Account Numbers had already been marked inoperative because of legacy database issues, the portal-side update reversed the status without any fee. |
5. Foreign Citizens -- Persons of Indian Origin, Overseas Citizens of India, and Pure Foreign Nationals
Foreign citizens fall outside the section 139AA Aadhaar requirement under Notification No. 37 of 2017 regardless of where they reside. A British, American, Singaporean or any other foreign-passport holder who has Indian-source income (Indian rental, Indian capital gain, Indian salary on deputation, Indian business profit) is required to obtain a Permanent Account Number under section 139A but is not required to obtain Aadhaar. The same exemption extends to Persons of Indian Origin holding Person of Indian Origin cards and to Overseas Citizens of India card-holders who have foreign citizenship.
Person Class | Permanent Account Number Required? | Aadhaar Required? | Permanent Account Number Inoperative Risk? |
|---|---|---|---|
Foreign citizen with Indian-source income | Yes (section 139A) | No -- exempt under Notification 37/2017 | Only if Country of Citizenship in Permanent Account Number record shows India incorrectly |
Overseas Citizen of India card holder (foreign citizen by passport) | Yes if Indian-source income | No -- exempt | Same -- update Country of Citizenship and residential status |
Person of Indian Origin card holder (foreign citizen) | Yes if Indian-source income | No -- exempt | Same |
Indian citizen residing abroad as Non-Resident | Yes | Exempt while Non-Resident | Update residential status to Non-Resident annually |
6. Return Verification for the Aadhaar-Exempt Filer
The five non-Aadhaar verification modes remain available to the Non-Resident Indian and foreign-citizen filer -- Net Banking Electronic Verification Code through an Indian-Rupee bank account; Bank Account Electronic Verification Code through a pre-validated Non-Resident External, Non-Resident Ordinary, or Foreign Currency Non-Resident bank account; Demat Account Electronic Verification Code; Digital Signature Certificate; and physical Income Tax Return Verification Form to Centralized Processing Centre Bengaluru. Net Banking Electronic Verification Code is the most commonly used, since most Non-Resident Indian filers maintain at least one Indian bank account.
Verification Mode | Suitability for Non-Resident Indian / Foreign Citizen | Note |
|---|---|---|
Net Banking Electronic Verification Code | Best -- works with any Indian-Rupee bank account with net banking | Login via Indian bank's site; redirects to Income-tax e-filing pre-authenticated |
Bank Account Electronic Verification Code | Available -- pre-validate Non-Resident External, Non-Resident Ordinary or Foreign Currency Non-Resident account | Indian Financial System Code required |
Demat Account Electronic Verification Code | Available if the Non-Resident Indian holds a Portfolio Investment Scheme demat account or a Non-Resident Ordinary demat account in India | Pre-validate the demat account on the portal |
Digital Signature Certificate | Mandatory for tax-audit, company and Limited Liability Partnership filers | Class II / Class III; available through Indian Certifying Authorities |
Physical Income Tax Return Verification Form | Last-resort -- post by Speed Post or ordinary post to the Centralized Processing Centre at Bengaluru within thirty days | International postage delays -- send by international courier and use the Speed Post tracking number |
7. Special Filing Considerations for the Non-Resident Indian
Concern | Position |
|---|---|
Form ITR-2 versus ITR-3 | ITR-2 for Non-Resident Indian with no business income; ITR-3 if there is business or partnership income |
Schedule FA (Foreign Assets) -- non-applicability | Non-Resident Indians are not required to disclose foreign assets in Schedule FA -- Schedule FA applies only to Resident and Ordinarily Resident assessees |
Permanent Account Number-Aadhaar linkage requirement | Exempt under Notification No. 37/2017 -- but residential status must be Non-Resident in Department records |
Tax Deducted at Source on Indian-source income | Deducted at the rate prescribed in section 195 read with the relevant Double Taxation Avoidance Agreement; Form 13 for lower-deduction certificate available |
Bank account for refund | Pre-validate a Non-Resident External account or a Non-Resident Ordinary account; Foreign Currency Non-Resident accounts are not eligible for Indian rupee refund credit |
Foreign Tax Credit under section 90 / 91 | Applicable only on income that is also taxed in the country of residence; Form 67 to be filed before the return |
Section 87A rebate | Available only to Resident individuals; Non-Resident Indians are not eligible |
8. The Cross-Border Filer's Annual Checklist
- Verify that the residential status in the Department's records is current for the assessment year -- update through 'Profile' if any change.
- Confirm the country of citizenship and country of residence are correctly reflected -- particularly important for first-year Non-Resident Indians.
- Pre-validate at least one Indian Rupee bank account (Non-Resident External / Non-Resident Ordinary) for refund crediting.
- Maintain a foreign-mobile-number-linked email account on the portal -- One-Time Passwords are sent to the registered email and the Indian mobile (if any).
- Where Tax Deducted at Source on Indian-source income exceeds the actual tax liability, claim refund through return; the section 244A interest is taxable in the year of receipt.
- If Permanent Account Number turns inoperative, first try the residential-status update route (no fee) before paying the rupees one thousand reactivation fee.
- Save the e-filing portal residential-status update screenshot and the verification acknowledgement in the client folder.
9. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: Section 139AA exemption for non-Indian-citizens Section 139AA of the Income-tax Act, 1961 read with the proviso to sub-section (1) and the Central Board of Direct Taxes Notification 37/2017 dated 11 May 2017 prescribes the Aadhaar-PAN linking exemption for (i) Non-Resident Indian assessees, (ii) non-Indian-citizen assessees, (iii) residents of Assam, Jammu and Kashmir, and Meghalaya, and (iv) assessees aged eighty years or above as on the relevant date. The Income Tax Appellate Tribunal Mumbai in [VERIFY: confirm Tribunal citation on the NRI-exemption interpretation] confirmed that the exemption is conditional on the assessee's residential-status certification with the income-tax department. [VERIFY: cross-check specific Tribunal citations in the BharatTax case-law database.] |
Prospective Interpretation -- The NRI-PAN portal-update mechanic Two unsettled interpretive issues. (i) Treatment of NRIs whose PAN was issued during their Resident period and remains tagged 'Resident' in the income-tax department's PAN database -- such PANs are treated as inoperative if Aadhaar-not-linked, despite the assessee's actual NRI status. The remedy is to update the residential-status flag on the e-filing portal. (ii) Treatment of foreign citizens with Indian-source rental / business income who hold PAN -- these are eligible for the exemption but must establish foreign-citizenship via passport / OCI documentation. The BharatTax case-law database should monitor emerging Tribunal positions. [VERIFY: confirm Tribunal decisions emerging on the post-2023 framework.] |
10. Key Takeaways
- Sub-section (3) of section 139AA read with Notification No. 37 of 2017 dated 11 May 2017 exempts four classes from the Aadhaar requirement -- Non-Resident under the Income-tax Act, foreign citizen, super senior citizen aged 80+, and resident of Assam / Jammu and Kashmir / Meghalaya.
- Aadhaar Act eligibility itself requires 182-plus days of residence in India in the preceding 12 months, so most Non-Resident Indians and foreign citizens cannot enrol for Aadhaar even if they wanted to.
- To activate the exemption, the residential status in the e-filing portal 'Profile' must reflect 'Non-Resident' / 'Foreign Citizen'; the Central Board of Direct Taxes Press Information Bureau release dated 18 August 2023 confirmed that updated status keeps the Permanent Account Number out of the inoperative bucket.
- Permanent Account Number turning inoperative is most often a residential-status data issue rather than a genuine non-linkage; resolution is procedural and free for genuine Non-Resident Indians and foreign citizens.
- Verification of the return uses Net Banking Electronic Verification Code, Bank Account Electronic Verification Code, Demat Account Electronic Verification Code, Digital Signature Certificate, or physical Income Tax Return Verification Form -- Aadhaar One-Time Password is unavailable for the exempt class.
- Schedule FA does not apply to Non-Resident Indians; section 87A rebate is unavailable; Form 67 must precede the return for foreign tax credit; pre-validate a Non-Resident External or Non-Resident Ordinary account for refund.
- Practitioner discipline -- review residential status at start of each season; update country of citizenship for foreign-passport holders; pre-validate Indian Rupee bank account; save acknowledgement screenshots.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.