Friday, July 29, 2011

Know your PAN

Whether you are an Indian citizen or an NRI, if you are filing taxes or have financial transactions in India you will almost always need a PAN card. 

What is PAN?
A Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department of India. Each set of numbers is unique to the individual, HUF, company, etc. (We will take a closer look at those numbers in a moment.). PAN is a permanent number, is unaffected by a change of address, even between states and is not transferable. It is illegal to own more than one PAN.

The PAN’s primary purpose is to bring a universal identification key factor that links and tracks various documents and information regarding taxes and financial transactions, such as loans, investments, buying and selling real estate and other business activities of taxpayers. By tracking the above it indirectly prevents tax evasion through non-intrusive means.

You can consider this number to be similar to the Social Security Number issued in the United States to USA citizens and other legal residents.

Structure of the PAN
The structure of the new series of PAN numbers is based using Phonetic Soundex code algorithm to ensure that each number is unique. The following list is “constant permanent parameters” that assist in the creation of phonetic PAN (PPAN) number:
  • Full name of the taxpayer
  • Date of Birth/Date of Incorporation
  • Status
  • Gender in case of individuals; and
  • Father’s name in case of individual (including in the cases of married ladies). 
The Date of Issue (DOI) of the PAN card can be found on the right hand side of the photo on your PAN card.

The 10 Digit Alphanumerical Sequence
Let’s take a look at the breakdown of the 10 digit alphanumerical sequence:
  1. The first five fields are called the core fields and are alphabetical in nature.
  2. The first three letters of the core field are an alphabetical series running from AAA to ZZZ.
  3. The fourth character of the PAN must be one of the following, depending on the type of assessee:
  • C — Company
  • P — Person
  • H — HUF (Hindu Undivided Family)
  • F — Firm
  • A — Association of Persons (AOP)
  • T — AOP (Trust)
  • B — Body of Individuals (BOI)
  • L — Local Authority
  • J — Artificial Juridical Person
  • G — Govt
(Example – Company = AAACA; Artificial Juridical Person = AAAJA; HUF = AAAHA; etc.)

     4.  The fifth character of the PAN is the first character of the following:
  • Your surname in the case of “P” or;
  • For all others you would use the first letter of the name of the Entity, Trust, Society, Organization, HUF, etc.
(Example - Atanu Gupta [Personal] = AAAPG4444A; Atanu Gupta [HUF] = AAAHL4444A; General Firm = AAAFG4444A; etc.)

     5.   The next four numbers are sequential numbers running from 0001 to 9999.
     6.   The last digit is an alphabetic check digit.

The New Phonetic PAN (PPAN)
The new Phonetic PAN (PPAN) helps to prevent the allotment of more than one PAN to assesses with the same or similar names. If a matching PPAN is detected, a warning is given to the user and a duplicate PPAN report is generated. In these cases, a new PAN can only be allotted if the Assessing Officer chooses to override the duplicate PPAN detection. Under this new system a unique PAN can be allotted to 17 crore taxpayers.

Myths Regarding PAN
Many people believe that PAN cards are used for tax purposes only. That is a myth. PAN numbers are required for the purpose of income tax but not the actual card itself. Photocopies of PAN cards are required as prove of identity in financial transactions such as opening a bank account, purchase and sale of property and motor vehicles, home telephone lines and investments, such as demat accounts and mutual funds, just to name a few.

In Conclusion
It is easy to see the importance of your PAN card and why you need the physical card as well as the allotted PAN number. If you do not have a PAN card, take the small amount of time need to apply for one today.


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