What is PAN Card | Why is it necessary to have PAN Card

Permanent Account Number [PAN] is a code that acts as identification of Indians, 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. An example number would be in the form of AAAPL1234C. 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. Like the Aadhaar Number and Driving License, it is also issued to foreign nationals (such as investors) subject to a valid visa and hence, it is not acceptable as a proof of Indian citizenship.

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 life time of the holder, throughout India. An important point to note would be that once issued, the PAN is not affected by a change of address.

PAN Details

PAN is a 10 digit alpha numeric number, where the first 5 characters are letters, the next 4 numbers and the last one a letter again. These 10 characters can be divided in five parts as can be seen below.
The meaning of each number has been explained further.

• First three characters are alphabetic series running from AAA to ZZZ
• Fourth character of PAN represents the status of the PAN holder.

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 — Government

• Fifth character represents first character of the PAN holder’s last name/surname.
• Next four characters are sequential number running from 0001 to 9999.
• Last character in the PAN is an alphabetic check digit.

Nowadays, the DOI (Date of Issue) of PAN card is mentioned at the right (vertical) hand side of the photo on the PAN card.

Why is it necessary to have PAN Card ?

It is mandatory to quote PAN on return of income, all correspondence with any income tax authority. From 1 January 2005 it will be mandatory to quote PAN on challans for any payments due to Income Tax Department. It is also compulsory to quote PAN in all documents pertaining to the following
financial transactions :

1. sale or purchase of any immovable property valued at five lakh rupees or more.
2. sale or purchase of a motor vehicle or vehicle, [the sale or purchase of a motor vehicle or vehicle does not include two wheeled vehicles, inclusive of any detachable side-car having an extra wheel, attached to the motor vehicle.
3. a time deposit, exceeding fifty thousand rupees, with a banking company.
4. a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank.
5. a contract of a value exceeding one lakh rupees for sale or purchase of securities.
6. opening a bank account.
7. making an application for installation of a telephone connection (including a cellular telephone connection).
8. payment to hotels and restaurants against their bills for an amount exceeding twenty-five thousand rupees at any one time.
9. payment in cash for purchase of bank drafts or pay orders or banker’s cheques for an amount aggregating fifty thousand rupees or more during any one day.
10. deposit in cash aggregating fifty thousand rupees or more with a bank during any one day.
11. payment in cash in connection with travel to any foreign country of an amount exceeding twenty-five thousand rupees at any one time.

PAN – LEGAL FRAMEWORK

The legal authority for allotment and use of the new series of PAN is derived from Section 139A of the Income-tax Act, 1961. This section lays down the framework for PAN, e.g, who is required to apply for PAN, who else can apply for PAN, who will allot PAN, transactions where PAN is required to be quoted, use of PAN in TDS certificates and TDS returns, that one person can have only one PAN and the manner
of applying for PAN. 

The manner of applying for PAN is laid down in Rule 114 of the Income-tax Rules, 1962. This rule, amended in 2003, also specifies the copies of documents required to be submitted along with the PAN application as proof of identity and address of the PAN applicant.

Rule 114B lists down the documents in which PAN is required to be quoted while entering into specified transactions/activities. Persons who do not have PAN are exempted from quoting PAN on furnishing a declaration in Form 60. Rule 114C lists the persons to whom section 139A does not apply. These are persons who have agricultural income by furnishing declaration in Form 61, non-residents, and Central Govt./State Govt. and Consular offices, where they are payers. Penalty of Rs.10,000/- is imposable u/s 272B for failure to comply with the provisions of section 139A.

PAN application forms

There are two types of PAN applications:

1. Application for allotment of PAN :  This application form should be used when the applicant has never applied for a PAN or does not have PAN allotted to him. Applicant may visit ITD’s website www.incometaxindia.gov.in to find whether a PAN has been allotted to him or not.

Following forms have been notified by ITD for submitting applications for allotment of new PAN:

FORM 49A : To be filled by Indian citizens including those who are located outside India.
FORM 49AA : To be filled by foreign citizens.

2. Application for new PAN Card or/and Changes or Corrections in PAN Data : Those who have already obtained the PAN and wish to obtain the new PAN card or want to make some changes/corrections in their PAN data, are required to submit their applications in the following form prescribed by ITD

'REQUEST FOR NEW PAN CARD OR/AND CHANGES OR CORRECTION IN PAN DATA’ : The same form can be used by Indian as well as foreign citizens. A new PAN card bearing the same PAN but updated information is issued to applicant in such case.

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