PAN stands for Permanent Account Number. It is a ten-digit alphanumeric identifier issued by the Income Tax Department of India to every taxpayer and certain other persons. PAN is governed by Section 139A of the Income Tax Act, 1961 and the Income Tax Rules, 1962 (Rules 114 to 114D). PAN is one of the most important documents in the Indian taxation system and has become an essential identification tool not just for tax purposes but for a wide range of financial transactions.
Structure of PAN
A PAN is a 10-character alphanumeric code in the format: AAAAA0000A
The structure is:
- First 3 characters — Alphabetic series (AAA to ZZZ) — assigned by the Income Tax Department
- 4th character — Indicates the type of taxpayer:
- P — Individual Person
- C — Company
- H — Hindu Undivided Family
- F — Firm
- A — Association of Persons
- T — Trust
- B — Body of Individuals
- L — Local Authority
- J — Artificial Juridical Person
- G — Government
- 5th character — First letter of the surname (for individuals) or first letter of the name (for non-individuals)
- 6th to 9th characters — Four-digit sequential number
- 10th character — Alphabetic check digit
Example: ABCPH1234D — Here P indicates individual, H indicates surname starting with H.
Who Must Obtain PAN — Section 139A
Under Section 139A of the Income Tax Act, the following persons are required to obtain PAN:
1. Persons required to file income tax return — Every person whose total income exceeds the basic exemption limit must obtain PAN.
2. Persons carrying on business or profession — Every person whose total sales, turnover, or gross receipts exceed or are likely to exceed ₹5 lakhs in any previous year.
3. Persons required to furnish return of fringe benefits — Every person required to furnish a return of fringe benefits under Section 115WD.
4. Importers and exporters — Every person who is required to pay any tax or duty under any law administered by the Central Board of Indirect Taxes and Customs.
5. Charitable trusts — Every charitable trust required to furnish a return of income.
6. Specified transactions — Any person who intends to enter into specified financial transactions (see below).
Mandatory Quoting of PAN — Section 139A(5)
Section 139A(5) and Rule 114B require PAN to be quoted in the following transactions:
Financial Transactions Requiring PAN:
- Sale or purchase of immovable property exceeding ₹10 lakhs
- Sale or purchase of motor vehicle (other than two-wheelers)
- Opening a bank account (other than Basic Savings Bank Deposit Account)
- Application for debit or credit card
- Cash deposit of ₹50,000 or more in a single day in a bank
- Cash deposit of ₹2.5 lakhs or more during demonetization period
- Payment to hotels of ₹50,000 or more at a time
- Payment for foreign travel of ₹50,000 or more at a time
- Purchase of mutual fund units of ₹50,000 or more
- Purchase of shares from a company exceeding ₹1 lakh
- Purchase of bonds or debentures exceeding ₹50,000
- Purchase of Reserve Bank of India bonds exceeding ₹50,000
- Cash payment for purchase of bank drafts of ₹50,000 or more
- Life insurance premium payment of ₹50,000 or more in a year
- Payment of restaurant bill exceeding ₹50,000 at a time
Aadhaar-PAN Linkage
The Finance Act, 2017 inserted Section 139AA making it mandatory to link Aadhaar with PAN. The deadline for linking has been extended several times. As of now, persons who have not linked their Aadhaar with PAN face the following consequences:
- Their PAN becomes inoperative
- They are liable to pay a penalty of ₹1,000 for not linking
- They cannot file income tax returns using an inoperative PAN
Consequences of Not Obtaining PAN
Under Section 272B of the Income Tax Act, if a person fails to obtain PAN when required, or fails to quote PAN when required, or quotes an incorrect PAN, he shall be liable to pay a penalty of ₹10,000.
Additionally, if a person does not provide PAN in transactions where it is required:
- TDS (Tax Deducted at Source) is deducted at the higher rate of 20% instead of the normal rate
- The transaction may not be processed by banks or other financial institutions
Application for PAN
PAN can be applied for through:
1. Online Application — Through the NSDL (now Protean eGov Technologies) website (https://www.onlineservices.nsdl.com) or the UTIITSL website
2. Offline Application — By filing Form 49A (for Indian citizens) or Form 49AA (for foreign citizens) at PAN application centers
Documents Required:
- Proof of Identity — Aadhaar card, passport, voter ID, driving license
- Proof of Address — Aadhaar card, passport, utility bills, bank statement
- Proof of Date of Birth — Birth certificate, school leaving certificate, passport
Processing Fee: ₹93 (for Indian address) or ₹864 (for foreign address) plus applicable GST.
PAN vs. TAN
| PAN | TAN (Tax Deduction Account Number) |
|---|---|
| For taxpayers | For persons who deduct TDS |
| 10-digit alphanumeric | 10-digit alphanumeric |
| Section 139A | Section 203A |
| Form 49A/49AA | Form 49B |
| Universal identification | Required only for TDS deductors |
Important Case Laws
1. CIT v. Shrimati Meena Vyas (2003) The court held that quoting of PAN is mandatory in specified transactions and failure to quote PAN attracts penalty under Section 272B.
2. Larsen and Toubro Ltd. v. State of Bihar (2006) The court discussed the importance of PAN as a tool for tracking financial transactions and preventing tax evasion.
Significance of PAN in Tax Administration
PAN serves the following important purposes in India's tax administration:
- Unique Identification — It provides a unique identity to every taxpayer, making it easy to track all financial transactions
- Prevention of Tax Evasion — By linking all financial transactions to a single PAN, the Income Tax Department can identify undisclosed income
- Efficient Tax Administration — PAN enables the Income Tax Department to maintain a comprehensive database of taxpayers and their transactions
- Linking of Financial Data — Banks, mutual funds, and other financial institutions report PAN-linked transactions to the Income Tax Department through the Annual Information Report (AIR) and Statement of Financial Transactions (SFT)
Conclusion
PAN is one of the most important tools in India's tax administration system. As a unique identifier for every taxpayer, PAN enables the Income Tax Department to track financial transactions, identify tax evaders, and ensure proper compliance with tax laws. The mandatory requirement to quote PAN in a wide range of financial transactions has made it an essential document not just for tax purposes but for virtually all significant financial activities in India. The linking of PAN with Aadhaar has further strengthened the tax administration system by eliminating duplicate or fraudulent PANs. Every person liable to pay income tax or undertaking specified financial transactions must obtain and properly use their PAN to ensure compliance with the Income Tax Act, 1961.
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