Loopholes in Digital Payments Detected
Student Accounts Used as Financial Channels
Mohinder Verma
JAMMU, Feb 20: A series of high-level investigations into banking compliance have uncovered serious financial irregularities in Jammu and Kashmir Bank, exposing the operation of high-value accounts without linkage to Permanent Account Numbers (PAN). The findings have raised alarm over possible tax evasion, proxy banking networks and potential money laundering.
According to official sources, two detailed enquiry reports prepared during 2025 point to systemic failures in Know Your Customer (KYC) compliance, weak internal monitoring mechanisms and extensive misuse of banking channels across multiple account schemes.
As per an investigation report dated February 14, 2025, around 1.58 lakh bank accounts were found operating without PAN linkage, despite many account holders actually possessing PAN cards. These accounts together recorded credits of nearly Rs 4.88 lakh crore between the financial years 2021–22 and 2023–24, involving annual transactions of Rs 15 lakh or more. Notably, 10,464 private non-PAN accounts alone handled credits worth Rs 9,649 crore during this period.
Sources said such funds not only escaped the tax net but could also have been used for other financial malpractices. The enquiry flagged violations of norms laid down by the Reserve Bank of India, suggesting a possible nexus between bank officials and individuals. The report was subsequently shared with law-enforcement and regulatory agencies, including the RBI, for further action.
Investigators also found glaring disparities between income declared in Income Tax Returns and credits reflected in bank accounts, indicating concealment of actual income through unlinked accounts. A steady rise was observed in accounts opened or operated solely on Form-60 declarations, bypassing mandatory PAN verification.
A second analytical report dated September 11, 2025, examined 505 high-value accounts across ten banking schemes from FY 2021–22 to FY 2024–25. All these accounts operated without PAN linkage, relied on Form-60 and recorded transactions exceeding Rs 50 lakh annually. The total inflow and outflow in these accounts stood at Rs 2,281 crore and Rs 2,252 crore, respectively.
The probe revealed extensive digital fund movement, with UPI-linked pooled accounts, though fewer in number, handling the highest transaction volumes. Region-wise analysis showed South Kashmir registering a net positive inflow of Rs 52.77 crore, largely sourced from pooled digital accounts.
One of the most striking findings was that non-linkage of PAN did not necessarily mean absence of PAN ownership. Of the 10,464 non-PAN accounts, 5,520 account holders possessed PAN cards, but only 1,230 individuals (22.3%) filed Income Tax Returns. The remaining 4,290 failed to file returns despite significant cash deposits and property transactions. In several cases, cash deposits far exceeded declared income.
Further analysis identified 132 additional bank accounts linked to 75 of the 505 high-value account holders. Common email-ID mapping revealed 39 unique email addresses connected with 44 identified accounts, which were also linked to 99 additional counterparty accounts. Investigators also mapped 72 national IDs to 75 accounts, which in turn were linked to 119 more counterparty accounts, revealing a dense web of direct and indirect financial linkages.
The investigation highlighted suspicious use of student savings accounts. As many as 29 student accounts were linked with 31 petrol filling stations. These student accounts transferred Rs 27.02 crore to fuel outlets, while receiving Rs 6,418 crore from 86,936 counterparties. Overall, Rs 43.01 crore was transferred to 9,700 counterparties, raising serious concerns over proxy operations.
A detailed probe into retail fuel outlets exposed a suspected modus operandi wherein digital payments made by customers through the bank’s M-Pay platform were credited to employees’ personal accounts instead of official business accounts. Only part of daily collections was transferred to registered company accounts, while the rest was allegedly diverted to unrelated third parties without invoices or accounting records. Payments to oil companies reportedly did not match total fuel sales, suggesting rotation of funds to mask actual revenue.
The enquiry also flagged vulnerabilities arising from limited integration with common UPI platforms, low credit-card penetration and heavy reliance on Cash-on-Delivery in e-commerce. Courier delivery personnel, sources said, effectively acted as temporary financial intermediaries, creating an informal parallel financial channel prone to tax evasion and untraceable fund movement.
Key findings include rapid rotation of funds across linked accounts, mirror transactions to conceal ownership, proxy operations through student and scheme accounts, diversion of digital business receipts into personal accounts and transactions absent from Income Tax and GST disclosures.
Based on these revelations, investigators have recommended strengthening KYC compliance, mandatory reporting of Form-60 accounts, closer monitoring of high-value transactions, forwarding credit transactions exceeding Rs 50 lakh to jurisdictional Assessing Officers under the Income Tax Act, scrutiny of non-PAN private accounts across schemes and enhanced monitoring of UPI fund flows in coordination with the National Payments Corporation of India.
Courtesy: Daily Exclesior
