In November 2018, the Central Board of Direct Taxes (CBDT) issued a notification, which stated that the directives mentioned under the Income Tax Rules, 1962, especially those relating to the PAN card, would be amended and introduced with effect from 5th of December 2018.
The move aims to mitigate instances of tax evasion and provide more flexibility to taxpayers. A PAN or Permanent Account Number is an essential document for taxpayers and businesses alike, which acts as a reference number for the Income Tax Department to keep track of all financial transactions.
Each cardholder receives a unique PAN number and may be used as an identity proof for some purposes. Having a PAN account is mandatory for individuals, partnerships, LLCs and small businesses and companies. If you are a business owner, here’s what you should know about the new PAN card rules.
Does Your Business Need A PAN Card?
All corporate bodies and small businesses, whether registered in India or abroad, require a PAN card if they are conducting the business-related transaction in India. The government of India made it a mandate under the Income Tax Act, 1961. Later the Act was amended in 2009 after the inclusion of Section 206AA by the Finance Act.
In case, the firm or small business doesn’t have the PAN; they would be liable to pay charges for withholding tax, applicable at the rate of 30% or more of the total invoiced payment. Overall, you would require a PAN account to get remittances on filing income tax returns and invoices paid.
Moreover, any entity or individual involved in business with an Indian company needs to hold a PAN card. Following bodies require PAN cards in India:
- LLC (Limited Liability Company)
- LLP (Limited Liability Partnership)
- Sole proprietorship
- Limited companies
- Private firms
- Foreign institutional investors
- Hedge funds
Recent Changes Made to the PAN Card Rules
These changes have been made to facilitate small businesses that are doing business here while preventing them from any possible tax evasion. Under the new PAN account rules, it is compulsory for all entities, undertaking financial transactions more than Rs 2.5 lakh in a fiscal year, to receive a Permanent Account Number. Also,
- The above rule applies to individuals such as managing directors, directors, partners, author, founder, office-bearer or chief executive officer, associated with the entities listed above. In case, these individuals and others don’t have a PAN card; they need to apply for one, by May 31, 2019.
- All resident entities are now required to have a PAN account, even if their total turnover, or gross transactions or total sales are not likely to be Rs 5 lakh or more in a given financial year. Subsequently, the new rule would help the income tax department to broaden the tax base, track financial transactions and prevent tax evasion.
- It is now optional for individual taxpayers to mention their father’s name in the application form for the PAN card. As a result, an applicant can choose whether they wish to mention their father’s name on the form, if their father has separated or passed away. They can also mention their mother’s name in their application.
- Quoting of a PAN is now mandatory for all financial transactions including the filing of income tax return (ITR), opening of a bank account or applying for an SME loan.
The PAN or Permanent Account Number isn’t just any random 10-digit alphanumeric identity. This unique identification now has a more comprehensive role to play in the Indian economy, especially for firms and small businesses. According to the recent PAN card changes, effective from December 5th, 2018; no financial transactions worth Rs. 2.5 lakhs or more in a fiscal year, could be made without citing the PAN details.
Also, the PAN information would have a more evolved role in mitigating tax evasion, tracking money transactions and return filing. Therefore, if you own a business and don’t have a PAN card yet, it’s high time that you do. Otherwise, you won’t be able to undertake crucial financial transactions such as applying for an SME loan from reputable insurers such as ABFL Direct, or even simple ones such as filing your IT return.