Permanent Account Number and four transactions needing it (as set, 1961 Act)

Meaning

A Permanent Account Number (PAN) is a ten-character alphanumeric identity number that the Income-tax Department allots to a person under section 139A of the Income-tax Act, 1961. It is permanent: it does not change with a change of address or Assessing Officer, and one person may hold only one PAN. Its structure is fixed: five letters, four digits and a final check letter (for example, ABCPK1234F), where the fourth letter shows the status of the holder (P for an individual, C for a company, F for a firm, H for a Hindu undivided family) and the fifth is the first letter of the surname or name. All of a person's returns, tax payments, tax deducted at source and high-value transactions are linked to it, so the Department can match them.

Who must apply (section 139A(1))

A person who has not been allotted a PAN must apply to the Assessing Officer, within the time prescribed, if:

1. his total income (or that of any person for whom he is assessable) in a previous year exceeded the maximum amount not chargeable to income-tax (clause (i));
2. he carries on a business or profession whose total sales, turnover or gross receipts exceed or are likely to exceed ₹5 lakh in a previous year (clause (ii));
3. he is required to file a return of income under section 139(4A) (clause (iii)): he receives income from property held under trust or other legal obligation wholly or partly for charitable or religious purposes, or voluntary contributions referred to in section 2(24)(iia), and the total income for which he is assessable as a representative assessee, computed without giving effect to the trust exemptions (the provisions section 139(4A) names, 11 and 12), exceeds the maximum amount not chargeable to income-tax;
4. being an employer, he is required to file a return of fringe benefits under section 115WD (clause (iv); the fringe benefit tax itself no longer applies);
5. being a resident other than an individual, it enters into financial transactions aggregating ₹2,50,000 or more in a financial year (clause (v));
6. he is, for such a resident, its karta, founder, author, trustee, partner, director or managing director, its chief executive officer or principal officer, an office bearer, or anyone else competent to act on its behalf (clause (vi)); or
7. he intends to enter into a transaction the Board prescribes in the interest of revenue (clause (vii), inserted by the Finance (No. 2) Act, 2019 from 1 September 2019).

The Central Government may also, by notification, name classes of persons who must apply within the time the notification sets: persons who pay tax under this Act or tax or duty under any other law, and importers and exporters whether or not any tax is payable by them (section 139A(1A)), and, to collect information useful for the Act, any other class (section 139A(1B)). The Assessing Officer may allot a PAN to any other person, having regard to the prescribed transactions, in the prescribed manner and procedure (section 139A(2)), and any other person may apply voluntarily, the Assessing Officer then allotting a PAN forthwith (section 139A(3)). A person already allotted a PAN under the new series may not apply for, obtain or possess another (section 139A(7)).

Quoting of PAN and Aadhaar

The PAN must be quoted in every return and in correspondence with income-tax authorities, in tax challans, and in the documents of the transactions the Board prescribes in rule 114B (section 139A(5)(a)-(c)); the Board may prescribe different dates for different transactions, classes of transactions or classes of persons (first proviso to section 139A(5)(c)); until a PAN is allotted, the person quotes his General Index Register Number (second proviso to section 139A(5)(c)). He must also inform the Assessing Officer if his address changes, or if the name or nature of the business on which the PAN was based changes (section 139A(5)(d)). The person receiving such a document must ensure the PAN (or the General Index Register Number or Aadhaar number) is quoted in it (section 139A(6); the Aadhaar number was added there by the Finance (No. 2) Act, 2019).

Aadhaar (section 139AA). Every person eligible to obtain an Aadhaar number must, on or after 1 July 2017, quote it in the application for a PAN and in the return of income; one who does not yet have it quotes the Enrolment ID of his Aadhaar application instead (section 139AA(1) and proviso). A person holding a PAN on 1 July 2017 who is eligible for Aadhaar must intimate his Aadhaar number to the authority prescribed, in the prescribed form and manner, on or before the date the Central Government notifies; if he fails to, his PAN is made inoperative after that date, in the manner prescribed (section 139AA(2), proviso, as amended by the Finance (No. 2) Act, 2019 from 1 September 2019; it formerly said the PAN would be deemed invalid). The section does not apply to the persons, or the States or parts of States, the Central Government notifies (section 139AA(3)). Since 1 September 2019, a person required to quote his PAN may quote his Aadhaar number instead, if he has no PAN but possesses an Aadhaar number (a PAN is then allotted to him in the prescribed manner), or has a PAN and has intimated his Aadhaar under section 139AA(2) (section 139A(5E)(a)-(b)).

Four transactions in which quoting PAN is compulsory (rule 114B of the Income-tax Rules, 1962)

Other transactions in the rule include: applying for a credit or debit card; opening a demat account; paying a hotel or restaurant bill, or for foreign travel, in cash above ₹50,000 at one time; buying mutual fund units, debentures or RBI bonds above ₹50,000; time deposits above ₹50,000 at a time or ₹5 lakh in a year; life insurance premium above ₹50,000 in a year; and purchase or sale of any goods or services above ₹2 lakh per transaction.

A person without a PAN who enters into such a transaction makes a declaration in Form 60, unless he quotes his Aadhaar number in its place under section 139A(5E)(a).

Consequences of default

Penalty (section 272B). The Assessing Officer may direct a person who fails to comply with section 139A to pay a penalty of ₹10,000 (section 272B(1)). Where a person required to quote his PAN (or Aadhaar number) in a document under section 139A(5)(c), or to intimate it under section 139A(5A) or (5C), quotes or intimates a false number, one he knows, or believes, is false, or does not believe is true, the Assessing Officer may direct a penalty of ₹10,000 for each such default (section 272B(2)); since 1 September 2019, where a person fails to quote or authenticate the PAN or Aadhaar in the documents of transactions prescribed under section 139A(6A) (section 272B(2A)), or, as the receiver, fails to ensure that it is duly quoted in the documents of transactions under section 139A(5)(c) or section 139A(6A), or duly authenticated for the transactions under section 139A(6A) (section 272B(2B)), the Assessing Officer may likewise direct a penalty of ₹10,000 for each default (sub-section (2) amended, and (2A) and (2B) inserted, by the Finance (No. 2) Act, 2019). No penalty order is passed unless the person has been given an opportunity of being heard (section 272B(3)).

Higher deduction of tax at source (section 206AA). A person entitled to a sum or income on which tax is deductible under Chapter XVIIB who does not furnish his PAN to the deductor suffers tax deducted at the highest of: the rate in the relevant provision of the Act, the rate or rates in force, and 20% (5% where tax is deducted under section 194-O or 194Q, under the provisos inserted by the Finance Acts, 2020 and 2021) (section 206AA(1)). A declaration under section 197A(1), (1A) or (1C) for no deduction is not valid without the PAN, and tax is then deducted under section 206AA(1); no certificate of lower deduction under section 197 is granted on an application without the PAN (section 206AA(2)-(4)). Deductor and deductee must show the PAN in their correspondence, bills and vouchers and in any other document either sends to the other (section 206AA(5)). A PAN that is invalid or does not belong to the payee is treated as not furnished (section 206AA(6)). The section does not apply to a non-resident (not a company) or a foreign company for interest on long-term bonds under section 194LC, or for other payments on prescribed conditions (section 206AA(7)).