Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Not providing PAN could land you in jail

Almost all financial transactionsbig or smallneed the Permanent Account Number to go through

The 10-charater long alphanumeric Permanent Account Number (PAN) has become an essential detail required in almost all financial transactions. Its main purpose is to link all transactions of a person—identified by the assigned PAN—with the Income Tax (I-T) Department. It also connects various documents, including payment of taxes, assessment, tax demand, tax arrears and so on. It facilitates retrieval and matching information related to investment, loans and other business activities of taxpayers. As a result, instances of tax evasion can be detected and the tax base made broader.

All existing assessees or taxpayers or persons who are required to furnish a return of income, even on behalf of others such as a minor child, need a PAN. If you run a business or are in a profession where total sales, turnover or gross receipts are or are likely to exceed 5 lakh in any previous year, you need a PAN.

Not mentioning or furnishing incorrect PAN, where required, can land you in trouble. “If an individual does not quote PAN while initiating the specified transactions, the authorities/institutions (such as banks or Registrar of Properties) may not process the transaction. Quoting PAN is a compliance requirement which is not in isolation," said Suresh Surana, founder of accounting and auditing firm RSM Astute Consulting Pvt. Ltd.

Besides that, if PAN is not provided to source of income—say, the company you are working for—you may be taxed at a higher rate specified in the relevant provision, or at the rate or rates in force, or at the rate of 20%. For instance, if a 25-year-old has just started working and does not give the company her PAN details, 20% tax may be deducted at source (TDS) even if her taxable income is in the 10% bracket.

You may have deposits in a bank account on which interest earned attracts TDS. If your income is below taxable limits, you can use forms 15G and 15H to avoid paying TDS. But if you don’t furnish PAN details, this benefit is lost, and TDS will be cut. Apart from this, the TDS will not be deposited with the I-T Department against your name. The bank needs your PAN details to be able to do this. So, not only will you lose money as TDS, you will not be able to claim a refund for it from the tax department.

Ankur Sharma, chief executive officer, TaxSpanner.com, which provides online tax filing services, said: “The intent of the Department in making PAN mandatory in certain financial transactions is to catch tax evaders. It has started matching financial transactions with income tax returns and sending tax notices to defaulters."

The I-T Department had initiated a business intelligence project in February 2013 to identify PAN holders who have not filed their return and about whom specific information is available in the databases of Annual Information Return (AIR, which is required for high value financial transactions), Central Information Branch and TDS/TCS (tax collected at source) returns. In the assessment year 2012-13, almost 1.22 million potential non-filers were identified. In assessment year 2013-14, the number had increased substantially to more than 2.17 million names. Letters have been sent to those in the list seeking responses.

The story doesn’t end at the taxmen asking why you haven’t declared an income or transaction. There is also a penalty of 10,000 for not furnishing PAN or giving the incorrect number. And this is not a one-time penalty; you can be penalized for each default. So, if you furnish an incorrect number to, say, your employer and the bank, you may have to pay 20,000.

In cases where the amount of tax that would have been evaded if the statement or account filed by the person had been accepted as true, exceeds 25 lakh, along with a fine, there may be rigorous imprisonment for six months to seven years.

If the amount is lower than 25 lakh, the rigorous imprisonment can be for three months to two years, added Rakesh Nangia, managing partner, Nangia & Co., an accountancy firm.

When PAN is mandatory

To combat tax evasion and curb black money, the I-T Department has tried to make PAN mandatory in almost all financial transactions, especially those that are above a certain value. “Rule 114B (Income Tax Act) provides the list of transactions and the monetary limits over which furnishing of PAN is mandatory," said Surana. Here are a few examples that most people encounter at some point of time.

Purchase and sale of immovable property such as a house, plot, flat or apartment, where the value is more than 5 lakh, you need to mention your PAN details. Further, if you are buying or selling a property worth more than 50 lakh, 1% of the value is deducted as TDS by the buyer. Both the buyer and the seller need to provide respective PAN details as deductor and deductee of TDS.

PAN is mandatory even while buying or selling a motor vehicle (other than two-wheelers) that requires registration under the Motor Vehicles Act, 1988, irrespective of its value.

Financial transactions of 50,000 or more usually need PAN details. These include opening most types of bank accounts, fixed deposits, or depositing amounts of or more than this during a day. Even a deposit exceeding 50,000 in any account with the Post Office Savings Bank needs PAN. Other transactions such as payment in cash to buy bank drafts, pay orders or banker’s cheques for an amount aggregating 50,000 or more during any one day, need PAN. You need it even if you are applying for a credit or debit card to any banking institution that comes under the Banking Regulation Act, 1949.

In investments, too, you can’t escape this essential detail. If you invest 50,000 or more in a mutual fund, to buy shares of a company, to buy debentures or bonds of a company or by other institutions (including the Reserve Bank of India), you need a PAN. Beside these, paying an amount aggregating 50,000 or more in a year as life insurance premium, needs this information.

If you are investing in or buying bullion or jewellery worth 5 lakh or more against a bill, you will have to mention your PAN.

It’s not just income and investments that are linked through a person’s PAN. Even spending your money comes under the umbrella. Some transactions, such as payment to hotels and restaurants against a bill exceeding 25,000 at one time or payment in cash of similar amount in connection with travel to any foreign country needs you to furnish PAN.

It may come as a surprise, but applying for installation of a telephone connection (including a cellular telephone connection) also needs the applicant’s PAN.

The number has become almost omnipresent in the world of transactions. In fact, in the recent house allotment scheme of the Delhi Development Authority, the only mandatory document or detail needed at the application stage was PAN (though not for applicants from economically weaker section).

With the focus increasing on black money and tax collections, the I-T Department will only get more rigorous in joining the dots. Reason enough to make sure you come through clean.

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