You might have heard several times about a PAN Card. Permanent Account Number (PAN) is a code that acts as an identification for individuals, families and corporates (Indian and Foreign as well), especially those who pay Income Tax.
It is a unique, 10-character alpha-numeric identifier, issued to all judicial entities identifiable under the Indian Income Tax Act, 1961. The Income Tax PAN code and its linked card are issued under Section 139A of the Income Tax Act. It is issued by the Indian Income Tax Department under the supervision of the Central Board for Direct Taxes (CBDT) and it also serves as an important proof of identification.
The PAN code is a 10-character long alpha-numeric unique identifier.
An example of a PAN code number would be in the form of AAAPL1234C.
The PAN is mandatory for a majority of financial transactions such as opening a bank account, receiving taxable salary or professional fees, sale or purchase of assets above specified limits etc.; especially high-value transactions.
The primary purpose of the PAN is to bring a universal identification to all financial transactions and to prevent tax evasion by keeping track of monetary transactions, especially those of high-net-worth individuals who can impact the economy.
The PAN is unique to each individual and is valid for the lifetime of the holder, throughout India. Since a PAN is linked to an individual, a point worth to mention is that the PAN code is therefore not affected by any change of address.
Quoting the PAN is mandatory when filing Income Tax returns, tax deduction at source, or any other communication with Income Tax Department. PAN is also steadily becoming a mandatory document for opening a new bank account, a new landline telephone connection / a mobile phone connection, purchase of foreign currency, bank deposits above 50,000, purchase and sale of immovable properties, vehicles etc.
One of the most important reasons to get a PAN card is for taxation purposes. If you haven’t linked your PAN number with your bank account, and your annual interest earnings on savings deposits exceeds Rs. 10,000/-, then the bank would deduct 30% TDS instead of 10%.. Also, you will be taxed at the highest rate possible. If you pay TDS (tax deducted at source), that cannot be counted without a PAN card and you may end up paying tax twice.
The PAN card carries your photograph, name and address. Hence it serves as a nationally accepted proof of identity.It is dependable and nationally recognized.
PAN for companies was made mandatory by the Indian Government as per the Income Tax Act, 1961 which was implemented in 2010. A company also has to provide their TRN (Tax Registration Number) to whoever is paying them. A TRN can be obtained only if you have a PAN. Several eCommerce websites mandate a TRN for companies to host and sell their products on their platform.
A taxpayer files an Income Tax Return every year. The return document itself is used for many purposes like checking your credibility while applying for a bank loan. You may be eligible for a refund if your TDS is higher than the amount of tax you actually need to pay. To claim for eligible refunds, you need a PAN card linked bank account to claim your refund.
Opening a Bank/ Demat Account :
As per the current rules, a bank account can be opened only if you have a PAN card(except if you are if you are opening a zero balance account under the Prime Minister Jan Dhan Yojna where you can use a Voter ID Card or Ration Card as proof of identity to open an account) A Demat account or Dematerialized account holds all your shares in dematerialized or electronic format, and to open such an account you need a PAN card.
Before you can invest, you will first have to get a KYC( Know your customer norm) by filling out a form available on the AMFI (Association of Mutual Fund of India) website, attach a self-attested copy of your PAN card and an address proof. Once you are KYC compliant, it is understood that you have a PAN card and hence the KYC document is accepted when you are making investments. Investing Rs. 50,000/- or more in RBI bonds also mandates a PAN Card.
For buying foreign currency above Rs. 50,000/- or more. Under the Foreign Exchange Management Act, a PAN is required. This is because all transactions involving foreign currency are classified under capital or current account transactions and hence require the possession of a PAN card.
According to the Securities Contracts (Regulation) Act, 1956, a purchase of any security (listed or unlisted) other than shares, bonds debentures and other marketable securities requires a PAN card. This is applicable if your per transaction amount is above Rs. 1 lakh. Any sale or purchase of unlisted company shares over the value of 1 lakh also mandates a PAN card.
While a PAN is mandatory if you have to open a new bank account, you will also need to show your PAN Card if you want to make bank drafts, pay orders, banker’s cheques and cash deposits above the Rs. 50,000/- limit. This is true even if you want to deposit more than Rs. 50,000/- in cash in your own account.
For purchasing or selling a house which is worth is more than Rs. 10 lakhs, providing your PAN details is necessary..