A Permanent Account Number (PAN) is a 10-character alphanumeric identification number, which includes both letters and digits, assigned to individuals and entities in India, especially those who are required to pay taxes. All tax-related records for a person are linked to a unique PAN, which acts as the key identifier for storing such information. No individual or business entity can have the same PAN.
When a PAN is allotted to a company or organization, the Income Tax Department issues a PAN Card. Although PAN refers to the number itself, the PAN Card is a physical document displaying the PAN number, along with the cardholder’s name, date of birth (DoB), and photograph. This card can be used as an identity or birth certificate proof.
History of PAN Card in India
Before the introduction of the PAN Card, taxpayers were given a GIR number. This manual system was specific to individual officers, but it was not unique on a national scale. Consequently, this led to higher risks of errors and identity confusion during tax assessments.
The concept of PAN was introduced by the Indian government in 1972 and formalized under Section 139A of the Income Tax Act of 1961. Initially optional, PAN became a mandatory requirement for all tax-paying individuals in 1976.
PAN Number Format
1) The full name of the PAN cardholder.
2) The name of the cardholder’s father.
3) The 10-digit PAN number: a permanent alphanumeric code.
4) The cardholder's signature.
5) The cardholder’s date of birth.
6) A photo of the cardholder.
7) A hologram issued by the Government of India with the Income Tax Department’s logo.
Details Included in PAN Card
The PAN card includes essential identification and age verification details, adhering to the Know Your Customer (KYC) norms. Below are the details present on a PAN card:
- Name of the individual/company holding the card
- The name of the cardholder’s father — Applicable only for individual cardholders.
- Date of birth — For individuals, it shows the birth date; for companies, it shows the registration date.
- The PAN Number — A unique 10-character alphanumeric identifier, with each character representing specific information about the cardholder.
- The first three characters are always letters from A to Z.
- The fourth character represents the taxpayer category.
Here are the different categories and their corresponding characters:
- A – Association of Persons
- B – Body of Individuals
- C – Company
- F – Firm
- G – Government
- H – Hindu Undivided Family
- L – Local Authority
- J – Artificial Judicial Person
- P – Individual
- T – Association of Persons for a Trust
- The fifth character corresponds to the surname of the individual cardholder.
- The remaining characters are generated randomly, with the first four being numeric and the last one being a letter.
- The card also displays the cardholder's signature, a requirement for financial activities.
- A photograph of the individual is shown on the card. For corporations or businesses, no photo is included.
Who is Eligible to Apply for a PAN Card?
The following groups are required to hold a PAN card:
- Individuals whose income exceeds the threshold specified in the income tax slabs.
- Individuals who earn taxable income on behalf of others (such as the income of a minor).
- Professionals or business owners with an annual income or turnover exceeding Rs.5 lakh.
- Entities registered under state or union territory general sales tax laws or the Central Sales Tax Act.
- Individuals involved in financial activities that require PAN card details.
- Charitable trusts obligated to file returns under Section 139 (4A).
- Importers and exporters who need an Import/Export code.
- Persons liable to pay excise duty.
- Individuals subject to TDS deductions.
- Persons and their representatives who are required to pay service tax.
- Those issuing invoices according to Rule 57AE.
Purpose of a PAN Card
- A PAN must be provided when paying direct taxes.
- PAN is essential when filing income tax returns.
- PAN details are necessary for business registration.
- Various financial transactions require PAN information. Below are examples of such financial activities:
- Buying or selling immovable property worth Rs.5 lakh or more.
- Purchasing or selling any vehicle other than a two-wheeler.
- Payments to hotels and restaurants exceeding Rs.25,000.
- Payments related to international travel that exceed Rs.25,000.
- Deposits in banks over Rs.50,000.
- Purchasing bonds worth Rs.50,000 or more.
- Investing in shares valued at Rs.50,000 or more.
- Buying an insurance policy with a value of Rs.50,000 or higher.
- Investing in mutual funds.
- Payments for jewelry and bullion purchases exceeding Rs.5 lakh.
- Transferring money abroad.
- Transferring funds between NRE and NRO accounts.
Why is the PAN Card Essential?
Below are key reasons why obtaining a PAN card is important:
- The PAN card serves as a legal identity proof for various purposes, including opening a bank account and obtaining a gas connection.
- Banking: A PAN card is required to open a bank account and for banking-related financial activities. It is necessary to prevent fraud and money laundering. Cash deposits of over Rs.50,000 per day require PAN card details. Fixed deposits exceeding Rs.50,000 also necessitate PAN submission.
- Debit/Credit Card Applications: A PAN card is required for applying for debit or credit cards. Applications without PAN may lead to rejection and negatively impact your credit score.
- Loan Applications: PAN card details are mandatory when applying for any type of loan.
- Property Transactions: For property transactions involving immovable property worth more than Rs.5 lakh, both the buyer and seller must provide their PAN card details. In joint ownership, PAN details of all owners are necessary.
- Jewelry Purchases: PAN details are required when purchasing jewelry or bullion valued over Rs.5 lakh.
- Post Office Deposits: PAN details are required when opening post office deposits over Rs.50,000.
- Digital Payment Wallets: For digital payment wallets, PAN information is necessary if monthly transactions exceed Rs.20,000.
- Vehicle Transactions: PAN card details are needed for the purchase or sale of vehicles, excluding two-wheelers.
- PAN card details must also be provided to brokers, Demat, and trading account providers when trading shares.
- Mutual Funds: When investing in bonds, debentures, or mutual funds, PAN card information is required.
- Insurance Premiums: For insurance premiums exceeding Rs.50,000 in a year, PAN details are necessary.
- Currency Exchange: PAN card details are required for exchanging local currency for foreign currency.
- Employers typically require PAN information for salary processing and tax purposes. It is also mandatory when filing an Income Tax Return (ITR).
Advantages of Having a PAN Card
- IT Returns Filing: Individuals and entities eligible for Income Tax must file their returns. A PAN card is essential for this process, making it one of the primary reasons for applying for one.
- Identity Proof: A PAN card serves as a valid identity proof. Along with the voter card and Aadhaar card, it is widely accepted by financial institutions and other entities as a form of identity proof.
- Tax Deductions: A PAN card is essential for taxation purposes. Without linking a PAN to your bank account, if annual interest income exceeds Rs.10,000, your bank will deduct 30% TDS instead of the usual 10%.
- Claiming Income Tax Refund: If the TDS deducted from your income is higher than the actual tax liability, you can claim a refund, but only if your PAN is linked to your bank account.
- Business Registration: To start a business or establish a company, obtaining a PAN is necessary. You need to use the PAN number when opening business accounts and during GST registration.