Know Your PAN – Meaning, Structure &Importance

What is PAN (Permanent Account Number)?

Dear reader, we all have heard lot about PAN.  Many of us are well informed about PAN card but still there are too many things which are not known to us. Even, users having a valid PAN are not cleared about – What is PAN card number? What is the usage of PAN? Who should have a valid PAN?

So, here, in this post, I am writing all about PAN and PAN card.

The PAN stands for Permanent Account Number. Basically, PAN is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department.

Permanent account number (PAN) is issued by the Income Tax department as per the provisions of Income Tax Act, 1961, to any “person” who applies for it or to whom the department allots the number without an application.

The PAN-Permanent account number allotted by tax department is a unique to each individual and valid for the life time of holder. It is very important to note that, PAN once allotted & issued is not affected because of change into the address of holder; the same PAN is valid throughout India.

Purpose / Objectives of Introduction of PAN

Primary purpose of Introduction of PAN was to bring universal identification of all financial transactions and preventing cases of tax evasion by keeping track or linking all monetary transactions of a person or tax payers.

PAN-Permanent account number enables the income tax department to track & link all monetary transactions of the “person” with the department. These transactions includes – tax payments, TDS/TCS credits, returns of income/wealth/gift, specified transactions, correspondence, and so on.

Thus, PAN acts as “identifier” and tax departments use it as an identifier tool to identify & track a person or tax payers.

PAN also facilitates tax department:

• In linking of various documents, including payment of taxes, assessment, tax demand, tax arrears etc. relating to a taxpayer or person,
• Easy retrieval and matching of information relating to investment, loans and other financial transactions of taxpayers collected through various sources (both internal +external)

with an objectives to detect and combat cases of tax evasion.

Structure & Nomenclature of PAN

For better clarity and to understand the PAN nomenclature & structure, here, I am taking an example of a typical PAN as “AMQPA1557D”. Structure is explained as follows:

1. First three characters i.e. “AMQ” in the above PAN are alphabetic series running from AAA to ZZZ

2. Fourth character of PAN i.e. “P” in the above PAN represents the status of the PAN holder (type of holder). Each holder is uniquely defined as below:

“P” stands for Individual, “F” stands for Firm, “C” stands for Company, “H” stands for HUF, “A” stands for AOP, and “T” stands for TRUST etc.

3. Fifth character i.e. “A” in the above PAN represents first character of the PAN holder’s last name/surname.

4. Next four characters i.e. “1557” in the above PAN are sequential number running from 0001 to 9999.

5. Last character i.e. “D” in the above PAN is an alphabetic check digit

Why having a PAN Card is so necessary? Who should or must apply for PAN?

It is not compulsory for every person to obtain a PAN, especially, if you don’t do any financial transactions where quoting of PAN is mandatory or you are not a taxpayer or not required to file your income tax return.  But, I would strongly suggest, you people should have a valid PAN.

Valid PAN will enable you to involve in any financial transaction where quoting of PAN is compulsory, can be used as a valid photo id proof as well. Having a valid PAN will also increase your financial credibility in the eyes of financial institution.

Thus, all taxpayers or persons, who are required to furnish a return of income (ROI), even on behalf of others, must apply for PAN.

The Assessing Officer may allot Permanent account number (PAN) to any person either on his own or on a specific request from such person.

Can minor apply for a PAN?

As per Section 160 of Income Tax Act, 1961, a non-resident, minor, lunatic, idiot, and court of wards and such other persons may be represented through a Representative assessee. In such cases, application for PAN will be made by the Representative assessee.

Validity of PAN – Will the existing PAN cards issued by the Department remain valid?

A PAN once allotted and issued by the department will remain valid. All persons who have been allotted a PAN need not apply again.

Can a person obtain or have more than one PAN?

Having or obtaining more than one PAN is not allowed and illegal.

As per the provisions of Income Tax Act, no person who has already been allotted a PAN can apply for another PAN. That means, possessing or obtaining more than one PAN is not permitted and illegal. Penalty may be imposed in such cases.

Penalty for having more than one PAN Card

We have read that, under Income Tax Act, possessing or obtaining more than one PAN is not permitted and illegal.

There is a provision for penalty, if any person caught having more than one PAN. A penalty of Rs 10,000 is imposed if an individual fails to meet this condition.

In Next Post, i am going to write about : How to get a PAN? What are the transactions where quoting of Permanent account number (PAN) is mandatory?