PAN, or Permanent Account Number, is a 10-character alphanumeric identifier issued by the Income Tax Department of India to individuals, companies, and other entities. It serves as a unique identity for taxpayers, enabling the government to track all financial transactions that may have a taxable component. PAN is mandatory for various activities such as filing income tax returns, opening a bank account, purchasing property, and conducting high-value transactions.
Legal Provisions and Applicability
PAN is governed by the Income Tax Act, 1961, particularly under Section 139A. According to Section 139A(1), every person whose income is taxable, or who is involved in financial transactions as specified by the CBDT (Central Board of Direct Taxes), must apply for a PAN. Furthermore, Rule 114B of the Income Tax Rules, 1962 lists transactions (like sale/purchase of immovable property, bank deposits above ₹50,000, etc.) where quoting PAN is mandatory. Section 272B also provides penalties for not complying with PAN provisions.
Importance and Use of PAN
PAN plays a crucial role in curbing tax evasion by ensuring that every financial transaction is recorded and linked to a single identity. It facilitates easy matching of various investments, income sources, and tax liabilities. PAN is not just essential for tax purposes but also acts as a valid identity proof in various official processes, including Know Your Customer (KYC) procedures in financial institutions.
Mnemonic to Remember PAN
To easily remember the significance and use of PAN, use the mnemonic “P.A.N.”:
- P – Proof of Identity
- A – Assessment of Tax
- N – Necessary for Transactions
