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PAN Card - Permanent Account Number (PAN) in India
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Permanent Account Number (PAN) is a mode of an Individual's identification in India. It is a unique alphanumeric identification number. It is an information store for all the citizens of the country. The structure of PAN is ABCDE1234F- where the first five characters are letters; next four characters are numbers and the last character is a letter.

The nature of PAN usage is similar to the National Insurance Number in UK. The National Insurance number in UK is an 10-digit numeric code that is a mandatory identification requirement for working in UK. It can also help the owner to gain additional benefits.

An interesting feature of PAN is its validity. A PAN card is valid till lifetime. So even if you change your residential address, your PAN card will be valid.

History of PAN in India

The PAN was introduced to overcome the shortcomings of the previously used identification number- GIR Number. GIR Number was basically a number assigned to all the taxpayers throughout the country before 1976. However, the GIR was only unique to the Assessing Officers Ward/Circle and not all the taxpayers throughout the country. This caused confusion amongst the Income Tax Authorities. The purpose of having an identification number for the taxpayers was not served. So, the Income Tax Act, 1961 made changes in the law and introduced the Permanent Account Number, a 10-digit alphanumeric Unique Identification Number. The non-uniqueness of GIR resulted in wrong assessment of Income Tax in the entire country.

In spite of the problems faced by the Income Tax Department by the usage of GIR as a taxpayer's identification Number, when PAN was introduced for the first time as the identification number in 1976, the following problems were faced by the Authorities:

  • No database to maintain records
  • Even if the information was recorded, it was constrained and had less accessibility
  • The several Assessing Wards/Circles were used as the authorities to issue PAN cards, but since the PAN was unique to each taxpayer of the country, there was the need of a centralized authority who issues the PAN card
  • A feature of PAN card these days is that, it doesn't change even if someone changes their address, but earlier PAN details used to change depending on a person's residential address

PAN Card Forms

People can apply for PAN card through two types of forms; Form 49A and Form 49AA.

Form 49A can be used by any Indian to apply for PAN card. The country of residence is not relevant in this case. So even if you're an NRI residing in US but you have streams of income flowing from India, you can apply for a PAN Card by filling up the Form 49A.

Non-individual bodies that need to fill up the Form 49A to apply for PAN card are- companies, firms, NGO (Non-Governmental Organisations), partnership firms, local bodies, trusts. Apart from the non-individual bodies mentioned above, minors and students can also apply for PAN in India by filling up Form 49A.

Form 49AA is supposed to be filled by foreigners who work in the country or have an income source in the country. Non-individual bodies like Limited liabilities companies, trusts, firms can also apply for PAN in India by filling Form 49AA.

Apart from foreign individuals and the non-individual entities mentioned above, OCI(Overseas Citizens of India) and NRE(Non Resident Entities) need to fill Form 49AA to apply for PAN for tax purposes.

The documents required for entities applying for PAN card through Form 49AA are-

  • Passport/OCI/PIO card
  • Bank account statement from their resident country

These documents are used as the residence and identity proof of the entities applying for PAN card through Form 49AA.

Tracking PAN Applications and Transactions

The tax authorities can track the transactions that an entity makes through ITBA-PAN. ITBA-PAN or Income Tax Business Application-Permanent Account Number is a program introduced by the government which is primarily used to track the transactions made by an individual by using the 10-digit Identification Number, PAN.

The benefits of ITBA-PAN are:

  • It can be used by the government to track every transaction made by an individual/entity, where ever they have quoted their PAN details
  • Financial transactions carried out during mergers, acquisitions or liquidation of assets by companies can also be traced back by using ITBA-PAN
  • Since the database of PAN details of all the taxpayers is already fed into the software, it becomes easy to catch hold of the defaulters for the Income Tax Authorities by using the ITBA-PAN software

Issuing of PAN Card

PAN issuing authority PAN can be issued to an individual/entity by the authorised PAN agencies in all the districts. You can visit the authorised agency in your district and apply for PAN. Alternatively PAN can also be issued by the National Securities Depository Limited(NSDL). You can apply for PAN online at the NSDL website.

PAN Allotment PAN is alloted to the applicants after the assessment procedure is completed by the Assessing Officers.

The Assessing Officers/AOs use the AIS(Automatic Identification System) to verify the personal and residential details provided by the applicant. After the basic round of verification by using the AIS, the application is sent to the centers where the Officers use IPAN system to fill in the date on which the individual/entity had applied for PAN. When the process of verification is finished the application is forwarded to the Central Data System in Delhi.The National Computer Center has all the data regarding individuals registered. The Central Data System verifies the details of the individual/entity against the pre-existing PAN data to discover if the applicant already owns a PAN. If the data suggests that the applicant already owns a PAN, the application gets rejected. If it's established that the applicant doesn't own a PAN, the PAN is alloted. This procedure of PAN allotment is called the batch allocation of PAN. The batch allocation of PAN is worked out through AIS.

After the verification process is completed in the Central Data System, the PAN details are sent to the Assessing Officer, who forwards the PAN details to be printed and sent to the applicant's address.

Operating Model PAN system operates on the PPP or Public Private Partnership Model. The reason for choosing this operating model is solely due to efficiency. PPP model is known for being effective and economic, which helps the Income Tax Department to competently issue PAN to the applicants. Two reputed entities, NSDL and UTIITSL have partnered with the Income Tax Department for the processing of PAN applications and handling and verifying of documents submitted by the PAN applicants.

Structure of Pan Card

PAN is a unique 10-digit alphanumeric code that provides the details regarding the identity of a person by tracking all their financial transactions. PAN is generally in the format ABCDE1234F. But, did you know that your PAN number encloses details to your identity? The first three characters are random alphabetic combinations from AAA to ZZZ. The total number of possible combinations is 17,576. So the first three alphabets of your PAN are chosen from a pool of 17,576 combinations of three alphabets.

The fourth character represents the PAN owner's status. So, if the fourth character is P, it means that the PAN is alloted to an individual/person. Similarly, here's a list of what the fourth alphabet of your PAN card could mean.

  • Association of Persons
  • Body of Individuals
  • Company
  • Firm
  • Government
  • Hindu Undivided Family
  • Local Authority
  • Artificial Juridical Person
  • Trust

The fifth character is the first letter of your surname. So, if your surname is Reddy, then the fifth character on you PAN would be R.

Just like the first three characters, the sixth to ninth characters are also the sequential combinations from 0001 to 9999. The number of possible combinations is 10,000. The tenth character is worked out by applying a formula to the predetermined nine characters.

Types of PAN Cards

PAN Card for Individuals PAN card for individuals tracks all the financial transactions made y a person linked with the PAN. It's mandatory for a person who comes under the Income Tax slab to provide their PAN card details.

PAN Card for Companies PAN card for companies plays the same role as the PAN for individuals. The differences between the PAN card for individuals and for organizations is that, there's no photograph in the PAN meant for an organization/company but when the PAN card issued for an individual has a photograph in it. Moreover, in place of date of birth, on an organization's PAN card, the date of inception of the company is mentioned.

PAN for foreign citizens in India For the foreign citizens who wish to establish/carry out their business in India, it is mandatory to obtain PAN card. PAN card for foreign citizens plays the same role as the PAN card for Indian nationals, the only difference being the form submitted while applying for PAN card. While an Indian national submits Form 49A while applying for PAN, a foreign national can apply for PAN card by submitting the Form 49AA to the authorities. Entities that are considered to be eligible to apply for PAN as national entities are also eligible to apply as a foreign entity. It is necessary for a company/organization to quote the PAN while carrying out any form of financial transactions such as mergers, acquisitions, liquidation etc.

Uses of PAN card

There are many uses of PAN card. It is one of the primary documents required in many official procedures. Your PAN card details could act as your identity proof and could help you in tracing your transactions.

The card can be used to avoid tax evasion and helps the Income Tax Department to trace back all the financial transactions that you make on a daily basis. Whether you're planning on buying a new property, wish to apply for a home loan or even credit card, you need to provide your PAN card details to complete any of these procedures.

However, there are many other uses of PAN card apart from tracing your financial transactions. Here are some of the uses of PAN card:

  • IT returns filing- You need to provide your PAN card details to file Income Tax returns. You need to fill your PAN details on the given space and you can file Income Tax online by visiting the e-filing website.
  • Opening a bank account- Since bank accounts are the primary medium for tracking anyone's financial transactions, in order to open a bank account you need to provide your PAN card details
  • Applying for a credit/debit card
  • Buying/selling a vehicle
  • Acts as a proof of identity
  • Applying for loans/insurance
  • Buying/selling/renting property in India
  • Useful in currency conversion
  • Used in the purchase of any precious metals

Concepts Similar to PAN Card

There are a number of identification numbers similar to PAN that help the Income Tax Authority for collection, deduction and refund of tax.

TAN (Tax Deduction Account Number and Tax Collection Account Number)

TAN is a 10-digit alphanumeric number issued by the Income Tax Department. It is used by entities that are responsible for Deducting Tax at Source(TDS) or by the entities responsible for Collecting Tax at Source (TCS). It is mandatory to quote TAN while applying for TDS or TCS, failure to do so would cost a fine of 10,000 to the applicant.

TIN (Taxpayer Identification Number)

TIN is an 11-digit unique identification number. It is used to identify companies registered under GST. TIN is allocated by the state authorities and it is mandatory for companies to quote their TIN while making any form of financial transactions.

It is essential for the companies to quote their TIN while generating quotations, invoices or quotations.