Whether you’re just starting your first job or opening your first bank account, you’ve likely been asked to submit a PAN Card. The PAN mechanism follows a computerised allotment system where a unique 10-digit alphanumeric identification number is assigned to every taxpayer in the country. Your PAN Card is not just important but mandatory for various everyday transactions and services like getting listed on the payroll. This article outlines the importance of a PAN Card in detail to help you understand this better.
Why is a PAN Card important
Here’s a list of reasons to help you understand the importance of a PAN Card:
Tax compliance
One of the primary benefits of possessing a PAN Card is tax compliance. PAN Cards were introduced to help the government track the taxable income of individuals and eligible entities. According to the existing regulations, all persons and entities earning a taxable income in India must have a valid PAN. Therefore, taxpayers need to quote PAN when filing income tax. Since your PAN Card consolidates all tax-related info in one place, it is easier for the government to track your liabilities.
Proof of identity
A PAN Card also serves as a proof of identity. This government-issued photo-ID document can be produced to complete KYC requirements at various places. For instance, you can use PAN as a valid ID proof to get a new LPG connection, broadband connection, enter into rental agreements, etc. PAN is widely accepted as a legal photo-ID proof.
Prevents tax evasion
Your PAN is an identification number that’s unique to you as a taxpayer. By connecting your transactions, investments, and income to a single ID number, PAN makes it easier to calculate your liabilities and track tax evasion. In other words, since all transactions are linked to your PAN, better accountability is guaranteed.
Claiming tax refund
You need your PAN Card to claim various deductions under the different sections of the IT Act. Since your PAN tracks all your tax-saving investments and existing loans, it becomes easier to prove deductions and claim applicable refunds. Tax deductions against your income are also listed against your PAN on Form 26AS. This means, if you are eligible for a refund, you can claim it only with a valid PAN.
Required for financial transactions
High-value financial transactions require a PAN Card. Transactions like purchasing a motorised vehicle, purchasing jewellery above Rs. 5 Lakhs, and buying immovable property above Rs. 10 Lakhs require PAN details to ensure these transactions are tracked accurately. Some other transactions may also require PAN details. For instance, PAN information may be needed for KYC verification on online payment wallets available on various online marketplaces.
Banking and investment
PAN is focused on eliminating instances of tax evasion and money laundering. To this end, PAN is mandatory for opening bank accounts in India (except the BSBD accounts). Similarly, you need to provide PAN details to make cash deposits of over Rs. 50,000 in a day or open an FD of Rs. 50,000 (or aggregating to Rs. 5 Lakhs in a year).
Availing credit
A PAN Card is mandatory if you want to acquire credit. Financial institutions like banks and NBFCs require PAN for processing loans, credit card applications, and even EMI-based purchases. Since your PAN is linked to tax payments, accounts, and investments, lenders use it to track your credit score, assess your credit history, and decide on approvals. Based on your financial records, lenders can understand if you are capable of repaying the proposed sum.
Participating in the securities market
PAN helps track your transactions in the market and curb the possibility of avoiding capital gains and other taxes. According to Indian market regulator, SEBI, possessing a PAN Card is mandatory for anyone who wants to open a Demat account. It is also needed to purchase shares, debentures, bonds, and mutual funds with an investment of over Rs. 50,000.
Business registration
PAN is also essential for registering your business. Company PAN is a unique identification issued to the business. It helps track transactions of the company and ensure tax compliance. PAN is also needed to become a GST-registered business, which can be beneficial for claiming input tax credits under the GST system. Moreover, a business can only obtain TRN if it has a valid PAN.
Conclusion
A PAN Card is a crucial document that streamlines tax and financial tracking for the IT Department. By preventing tax evasion, and income concealment, PAN helps boost the government revenue. For the taxpayer, PAN serves as a unique identity proof making it easier to access services. It also makes it simpler to file taxes, compute liabilities, and claim refunds.
