PAN stands for Permanent Account Number. Originally introduced as a document to keep track of taxes and prevent tax evasion by the Income Tax Department of India. A PAN card is used for all financial transactions you make.
It is one of the most important documents every individual and organization must have to facilitate business and operations. Whether you are buying a car or transferring money, a PAN card is necessary for every transaction of value.
You will need a PAN card for any banking related transactions that occur. Even for getting your salary or applying for a personal loan, you are required to have a PAN card. It is issued by the Income Tax Department of India. The Income Tax Department has a track of all the major transactions you make in a financial year.
A PAN card consists of a 10-digit alphanumeric character that contains information about your citizenship status, your last name or first name. It also acts as a proof of identity across the nation and even minors are allowed to have a PAN Card.
Non-resident Indians, Overseas Citizen of India cardholders, Person of India Origin including Foreigners who come under the extent of Income Tax Act 1961 can apply for a PAN card. Companies, firms, Government agencies, Artificial Judicial Person, Limited liability partnership, Trusts are all required to have a PAN card as their incomes fall under the Income Tax Act 1961.
Breakdown of a PAN card
The 10-digit alphanumeric character has its own characteristics with the digits and alphabets pointing to particular information. If you look at a PAN card, the first five and the 10th character is an alphabet while the middle four characters are numbers.
- Three of the first five alphabets are a combination of characters from AAA to ZZZ.
- From 5th to 9th are numbers ranging between 0001 to 9999.
- The last character is an alphabetic check digit.
- The fourth character which is an alphabet denotes the status of the cardholder. The following letters are usually found on the PAN card:
- “P” stands for Individual cardholders.
- “T” stands for Trust.
- “C” stands for Company.
- “G” stands for Government Agency.
- “H” stands for Hindu Undivided Family.
- “A” stands for the Association of person.
- “B” stands for Body of Individuals.
- “J” stands for Artificial Juridical Person.
- “L” stands for Local Authority.
- “E” stands for Limited Liability Partnership.
- “F” stands for Partnership Firm, and so on.
How to apply for a PAN card?
You are required to fill one of the two forms 49A or 49AA for submitting an application for PAN card based on your residential status. According to the Income Tax Department, Indian Citizens, Entities incorporated in India, Indian Companies Unincorporated entities formed in India are required to fill the form 49A.
On the other hand, individuals not being a citizen of India, Unincorporated entities, Entities incorporated outside India, formed outside India are required to fill the form 49AA. You need to submit certain other documents along with the forms to be eligible to get a PAN card issued on your name.
Documents you will need if you are an individual or an entity applying for a PAN card in India alongside form 49A or 49AA are:
- Identity Proof
- Date of Birth Proof
- Address Proof
PAN card numbers are allotted by the Income Tax Department but you can submit the form online to two representing agencies authorized by the Income Tax Department. The UTI Infrastructure Technology And Services Limited (UTIITSL) and National Security Depository Limited (NSDL) accepts PAN card applications from both resident and non-resident individuals and companies.
Why do you need a PAN card?
PAN card has many benefits that make it an important document for every Indian. You will need a PAN card for any monetary value transaction in the country.
Bank Account Opening: it is mandatory for an individual or a company to have a PAN card in order to open a bank account in their name. Every nationalized bank in the country is required to collect PAN card details before opening an account. No matter if you are opening a savings or recurring or current account, you will need to have a PAN card for getting a bank account.
IT Returns Filing: every individual and entity is required to have a PAN card to file income tax returns. It is mandatory for individuals and companies to file for Income Tax returns who fall under the bracket of Income Tax Act 1961. This is the main reason for individuals and companies to apply for a PAN card.
Purchasing a motor vehicle: while purchasing a motor vehicle worth over Rs 5,00,000 you are required to furnish your PAN card for the transaction.
Credit and debit card issue: in order to get a credit card every person is mandated by the law to provide his PAN card details to the issuing agency. Without your PAN card, you are not entitled to a credit card as per the income tax act 1961. Similarly, for a debit card, you are required to submit your PAN to your bank.
Buying Jewellery: In case you are buying jewelry of value over rupees 5,00,000, you have to provide your PAN card details during purchase.
Investments: if you are planning to invest in the stock market, you are required to furnish your PAN card details for transactions over Rs 50,000. To invest in stocks or mutual funds or bonds, one needs to have a Demat account. You need your PAN card for opening a Demat account that can be used for trading and investing in the stock market.
Identity Proof: PAN card is accepted as proof of identity across the country. While voter cards can only be issued to people attaining voting age, a PAN Card can be issued to minors as well. However, the parents or guardian of a minor need to apply on their behalf, rest all the procedure is the same as an adult and once the minor is 18 years he can update it with his own signature.
Foreign Exchange: while traveling abroad, you will need to convert your Indian currency to foreign currency. The exchange bureau will require your PAN card details to provide you the exchange value of the Indian currency.
Buying or selling of Immovable Assets: if you are buying a new house or renting a property, you will need your PAN details to be mentioned in the deed or agreement. If the value of your purchase of land or immovable property is over 10 lakhs the PAN card details of the seller and the buyer is to be mentioned in the deed or agreement.
Getting a Loan: If you apply for a loan be it an education or car loan or a personal loan, you are required to submit your PAN card to the lender. Every bank and non-banking financial institutions need you to submit your PAN details with your loan application for approval.
TDS Deduction: if your earnings from interest on Fixed Deposits or savings accounts are over Rs 10,000 you will need to link your bank account and PAN card. If you do not link your PAN card a TDS of 30% will be charged on the interest earned. Linking your PAN card will entitle you to a tax deduction, ensuring you pay only 10% TDS on the interest earned.
Bank Transactions and deposits: you will need to provide your PAN card details when making any transaction above Rs 50,000 in a day through bank cheques, drafts and pay the order. Any transaction over the Rs 50,000 limit will need a PAN card. RBI has also mandated the banks to report large sum deposits to RBI directly in order to keep a check on money laundering.
Starting a Business: in India, you need a Tax Registration Number (TRN) to start a business that can only be issued to entities having a valid PAN card. It is also essential for tax purposes related to business operations.
Insurance Premium Payment: you are required to furnish your PAN card for any insurance premium payments exceeding Rs 50,000 value in a year. The Income Tax Department has made it mandatory to include PAN card as a mandatory document for payment of insurance and claiming insurance payments.
Hotel Bills: if your hotel bills are over Rs. 50,000, you will need your PAN card to make the payment.
Can you apply for a personal loan using a PAN card?
A personal loan has become very popular among working professionals and youths alike. The ease of the application process and flexibility with low interest makes it ideal for working individuals. All you need is a PAN Card or Aadhar Card to apply for a personal loan online and get the money directly into your bank account.
As we can see, a PAN card is very important for any day to day monetary transaction. Every individual or entity will need it for making or accepting any payments. This is also to avoid tax evasions which can hurt an economy. Every PAN card is unique to the holder and there can be no two PAN cards in the same name. You can apply for a PAN card easily online. Any banking related transactions require your PAN card thus having it is necessary for India. Tax frauds and tax evasion are criminal offenses, so be an ideal citizen and pay your taxes on time.