In this blog post, Srishti Khindaria, a student of Amity Law School, Delhi, Guru Gobind Singh Indraprastha University writes about the concept of PAN Card and how to apply for it and it’s usage in everyday life for common citizens. The post also talks about some common PAN frauds that take place and how one can beware of those frauds.
What is PAN?
PAN or Permanent Account Number is a unique ten digit alphanumeric number allotted to each taxpayer by the Income Tax Department under the supervision of the Central Board of Direct Taxes. A PAN card is in the form of a laminated card. It enables the IT department to link all transactions of the PAN holder to the department; these could be transactions such as the return of income/wealth/gifts, tax payments, TDS (tax-deductible at source) payments, etc. It also serves as a proof of identity.
A PAN is mandatory for financial transactions such as receiving a taxable salary, sale/purchase of assets above a specified limit, receiving professional fees, buying mutual funds, etc. It was introduced to facilitate linking of various documents relating to an assessee to ensure that there is an easy retrieval of information and monitoring, and collection of data, and activities relating to investment, raising loans and other business activities of taxpayers for detecting as well as combating tax evasion. In simple words, it acts as an identifier of a person with the Income Tax department. It can be related to the Social Security Number (SSN) in the United Sates or the Social Insurance Number (SIN) in Canada.
Know Your PAN Card
A typical PAN number is in the form of AEZPK6179K, where;
- The first three characters, i.e., “AEZ” are alphabetic series which run from AAA to ZZZ.
- The fourth character, i.e., P represents the status of the PAN holder.
- P denotes Individual
- F denotes Firm
- C denotes Company
- H denotes Hindu Undivided Family (HUF)
- A denotes Association of Persons (AOP)
- T denotes Trust
- The fifth character, i.e., K represents the first letter of the PAN holder’s last name.
- The next four characters, i.e., “6179” are part of a sequential number series running from 0001 to 9999.
- The last/tenth character, i.e., “K” is an alphabetic check digit.
Who Must Have a PAN?
The following must be in possession of a PAN Card
- All existing taxpayers or assesses or persons who required furnishing a return of income, themselves or on behalf of someone.
- Any person who is carrying on business or is involved in any profession where the total sales, turnover or gross receipts are or seem likely to exceed five lakh rupees in the previous financial year.
- Any person who intends to enter into a financial transaction where quoting PAN is necessary.
- An Assessing Officer may allot PAN to any person either on his own or at a specific request from such person.
How to Apply for PAN Card?
- A PAN card is applied for using Form 49A- for Indian citizens and Form 49AA- for foreign citizens.
- The location of PAN card offices in your city can be found on the websites of the Income Tax Department or of the National Securities Depository Limited.
- An application can also be filed online through the website of the Income Tax department or the National Securities Depository Limited.
- Copies of proof and identity and address will be required.
- Payment for the application can be made via cash, cheque or demand draft. In the case of an online application via net banking, debit card or credit card.
- The status of applications can be tracked online.
Is PAN Compulsory for Non-Resident Indians?
If anyone in the capacity of being a Non-Resident Indian (NRI) conducts any financial transaction in India, they must compulsorily quote their PAN as without a PAN it would be impossible to conduct financial transactions through banks.
Even to invest in the Indian stock market or to open an NRI account a PAN is required. PAN is also required for purchase of immoveable assets and to operate businesses in India.
Why is A Pan Card Important?
A pan card is required for a lot of purposes thus making it an extremely valuable and indispensable part of most people lives. Some of the important uses of the pan card are as follows;
- Filing Income Tax Returns: This is the most obvious and essentially the primary purpose of obtaining the PAN card in the first place.
- While Opening a New Bank Account: It is essential to produce a copy of the PAN card while applying for a new bank account be it in a public, private, cooperative or another bank. This is because banks have to keep a tab on all high-value cash transactions and periodically report them to the Reserve Bank of India as per their (RBI) norms. However, under the recently initiated Pradhan Mantri Jan Dhan Yojna a PAN card was not required by participating banks to open bank accounts.
- ID Proof: A PAN card is accepted as a valid ID proof in all cases, where Government or non-Government organizations require an ID proof for things such as a passport, gas connection, telephone connection, etc.
- At your Job: Upon joining a new company, your employer will require your PAN for taxation purposes. Employers deduct tax at source (TDS- tax-deductible at source), professional tax, etc. Also, they require the PAN to show their outgoings to you in the form of remuneration/salary when they file their tax returns.
- For Foreign Travel: It is must quote you PAN in cash payments which are in connection with foreign travel or purchase of foreign currency exceeding the sum of fifty thousand rupees at any one time. This includes everything, from fare to payment to a travel agent. Further to obtain foreign exchange, even if you have a valid passport or Visa you need to submit a copy of your PAN.
- Bank Fixed/Time Deposits: The bank will require PAN details in case the value of the FD exceeds fifty thousand rupees. Banks require this as TDS is deducted on the interest earned on FDs.
- Share Trading: Trading in shares will also require a PAN. You need to furnish your PAN details to the brokers as well as to the Demat and Trading Account provider.
- Mutual Fund Investments: Just as in the case of shares, while investing in mutual funds too a PAN card is required, and you need to quote your PAN for you mutual fund request to be accepted.
- Property Transaction: For the sale of purchase of any immovable which is more than rupees ten lakh in value it is essential to quote the PAN of both the buyer and the seller, or else the transaction cannot be completed.
- Vehicle Purchase:When purchasing an expensive car or automobile you may be asked to quote your PAN.
- Purchase of Jewelry: In case the value of jewelry purchased is more than two lakh rupees than it is essential to have a PAN card.
- Cash purchase of bank drafts/ pay orders/ banker’s cheques: For purchase value exceeding Rs. 50,000 on any one day quoting PAN is mandatory.
- For Credit Card Application: Quoting PAN Card is the must for obtaining a credit card from a banking institution or company and even cooperative banks.
PAN Frauds You Must Beware Of
The likeliness of PAN identity theft has grown with the growing importance of PAN. Merely safeguarding the physical copy cannot prevent misuse. Information can be misused very easily for benami property transactions or purchase of tickets of high value, as a majority of transactions demand simply quoting of the PAN or a photocopy of the PAN Card. Thus, a copy of your PAN card or its number could be quoted in transactions that you are not even a part.
An example of PAN Card Scams includes the Booking of Tatkal Railway Tickets Scam, where a consumer activist group recently revealed that the PAN card copy which is used book Tatkal railway tickets is being misused by several jewelers. As when an individual books tatkal tickets he needs to furnish his PAN details and these details are displayed on the ticket as well as reservation chart and the train coaches and these PAN details are stolen by dishonest jewelers which they use to furnish tax collected details while selling high-value jewelry to individuals who do not wish to disclose their PAN, in order to avoid tax liability.
What to do if you are a Victim of Such a Fraud?
It may be up to six months after which you can become aware of the illegal use of your PAN card. To check for illegal transactions that you did not approve of you can go through Form 26AS, which is a consolidated statement of deducted tax, along with other things, however if you are a non-tax paying PAN card holder then you may not be able to check this. The PAN holder will have to prove to the Income Tax department that the transaction was not carried out by him and give details of his funds and their sources. This becomes very difficult for the PAN holder and is extremely time-consuming. Thus, as PAN card holders we must take due care and be cautious while handing over out PAN details to anyone, we must hand over only signed photocopies and try to reduce usage of PAN as ID proof in all casual transactions.
 Under S.2(7) of the Income Tax Act, 1961, unless the context otherwise requires, the term “assessee” means a person by whom any tax or any other sum of money is payable under the Act,