WHAT IS PAN?

An NRI is an Indian citizen who resides outside of India, typically for employment or business purposes, with an intention to stay abroad for an uncertain duration. Additionally, any Indian citizen temporarily assigned to work outside India can be classified as an NRI.

A Permanent Account Number (PAN) is a unique ten-digit alphanumeric identifier issued by the Income Tax Department. It is provided to individuals upon application or allocation by the department. PAN serves as a means for the tax department to link all transactions of the individual, encompassing tax payments, Tax Deducted at Source (TDS), Tax Collected at Source (TCS) credits, income/wealth/gift/FBT (Fringe Benefits Tax) returns, specified transactions, and correspondence. Essentially, PAN functions as an identification tool for individuals with respect to the tax department.

The introduction of PAN was aimed at facilitating the linkage of various documents, including tax payments, assessments, tax demands, tax arrears, etc., related to a taxpayer. This simplifies the retrieval of information and allows for the matching of data concerning investments, loans, and other financial activities collected from various sources, both internal and external. This aids in the detection and prevention of tax evasion and contributes to the expansion of the tax base.

A typical PAN is AFZPK7190K.

• The first three characters in the PAN, such as “AFZ,” comprise an alphabetic series that ranges from AAA to ZZZ.
• The fourth character, like “P” in the provided PAN, signifies the status of the PAN holder. “P” signifies an Individual, “F” represents a Firm, “C” denotes a Company, “H” stands for HUF (Hindu Undivided Family), “A” represents AOP (Association of Persons), “T” indicates TRUST, and so on.
• The fifth character, such as “K” in the example PAN, signifies the initial character of the PAN holder’s last name or surname.
• The next four characters, such as “7190,” are sequential numbers ranging from 0001 to 9999.
• The last character, such as “K” in the provided PAN, serves as an alphabetic check digit.

WHY IS IT NECESSARY TO HAVE PAN?

It is a mandatory requirement to provide your PAN (Permanent Account Number) in the following scenarios:

1. When filing your income tax return or corresponding with any income tax authority.

Starting from January 1, 2005, it is also obligatory to furnish your PAN when making payments to the Income Tax Department through challans.

Furthermore, PAN is compulsory in all documents related to the following financial transactions:

• The sale or purchase of any immovable property valued at five lakh rupees or more.
• The sale or purchase of a motor vehicle (excluding two-wheeled vehicles, including those with detachable side-cars having an extra wheel).
• Depositing a sum exceeding fifty thousand rupees in a time deposit with a banking company.
• Depositing a sum exceeding fifty thousand rupees in any account with the Post Office Savings Bank.
• Engaging in a contract valued at more than one lakh rupees for the sale or purchase of securities.
• Opening a bank account.
• Applying for the installation of a telephone connection, including cellular telephone connections.
• Making payments to hotels and restaurants for bills exceeding twenty-five thousand rupees at any one time.
• Making cash payments for the purchase of bank drafts, pay orders, or banker’s cheques, totaling fifty thousand rupees or more in a single day.
• Depositing cash aggregating fifty thousand rupees or more with a bank during a single day.
• Making cash payments in connection with foreign travel for an amount exceeding twenty-five thousand rupees at any one time.