PAN stands for “Permanent Account Number”. It is a ten-character alphanumeric series issued by the Indian Income Tax Department to the taxpayers. Just like a credit card number or a bank account number, PAN number is unique and belongs to the person it was issued to and cannot be transferred. As the name suggests, PAN is a permanent number, and once issued, cannot be changed. It is unaffected by change of address or nationality. A PAN number is mandatory for any kind of communication with the Income Tax Department.
Do you need a PAN Card?
PAN was originally issued to taxpayers solely for the purpose of tax collection and return processing. Over a period of time, since the PAN card also carried a photograph of the cardholder, it doubled up as identity proof. To date a PAN card is nationally accepted as a standard identity proof.
So do you need a PAN card? It is like asking if you need a passport. While the answer is a definitive yes, if you are planning on a overseas travel, the answer would still be a yes if you do not have any such travel plans! That’s because a passport in addition to being a necessity for overseas travel, also doubles up as a well accepted address, identity and nationality proof. By the same analogy, you will definitely require a PAN card if you are paying income tax, and it is still advisable to have a PAN card, if you are currently not paying any taxes. Here’s why -
Apart from being a well-accepted identity proof, you will also require a PAN card for:
• Opening bank accounts
• Making investments in mutual funds, buying shares (As per the KYC norms)
• Large cash transactions (greater than Rs. 50,000) with a bank or post office
• Buying and selling real estate properties
• Purchase or sale of a motor vehicle (not applicable for two wheelers)
• Applying for mobile or landline connection
• Any other financial transaction where quoting a PAN number is mandatory
• And of-course while filing your income tax returns
As you can see, having a PAN card has many advantages and no real disadvantage. If you do not have a PAN card, please apply. It will serve you well, at least as an identity proof if not for anything else.
What is the eligibility criteria to apply for a PAN Card?
There is absolutely no eligibility criteria to apply for a PAN card. You need not have an income, or be a taxpayer to be eligible to submit an application for PAN card. There is no restriction by age, nationality or region. Apparently, applications on behalf of newborns are also accepted.
Anatomy of a PAN card
A typical PAN card is the size of a credit/debit card and has the photograph and signature of the owner on its face.
• A PAN has the following format: AAAAA8888A. First five characters are letters, next 4 are numerals, and the last character is a letter
• The fourth character of the PAN is one of the following, depending on the category of the PAN owner
1. C — Company
2. P — Person
3. H — HUF(Hindu Undivided Family)
4. F — Firm
5. A — Association of Persons (AOP)
6. T — AOP (Trust)
7. B — Body of Individuals (BOI)
8. L — Local Authority
9. J — Artificial Juridical Person
10. G — Govt
• The fifth character of the PAN is always the first character of the surname of the person
Two is too many
It is illegal to own more than one PAN . If caught with possession of multiple PAN cards, the person can be fined Rs.10,000/-. If you are wondering why it is illegal to have more than one PAN card, you need to first understand how Income Tax Department uses PAN.
As you already learnt, quoting a PAN is mandatory for any financial transaction of value more than 50K. This allows the Income Tax Department to monitor all high value transactions occurring within the country. Every year all the taxpayers mandatorily file their income tax returns with the Income Tax Department along with their PAN. The tax department then mines this data to identify all those who have not reported or under-reported their income by verifying the data in their returns against the information collected earlier. The tax evaders are easily spotted and notices are sent to their residences to pay up or face litigation.
But some people found a smart way of working around the system by owning multiple PAN cards and spreading their financial affairs across various PANs thus staying under the Income Tax departments’ radar. To curb such practices, it is illegal under the law for a person to own more than one PAN at a time.
Not having a PAN can also cost you dear!
The number of people paying taxes accounts for a mere 3% of the population and this number also includes those who underpay taxes! In an effort to bring more people under the tax net by encouraging people to obtain PAN, the government has made it mandatory to quote PAN wherever payments are received against services offered.
If you are salaried or offer consultancy or contractual services, then it is mandatory to quote your PAN to your employer/customer. Not revealing your PAN can attract a TDS (Tax Deduction at Source) rate as high as 20% against a standard rate of 10% or 2%. That’s more of your income deducted at source as tax, even before it reaches your pocket – definitely not a pleasant situation to be in!
We hope you are convinced why you will need a PAN card.
PAN follows a definite structure and is not some random combination of alphabets and numbers
