Saturday, 27 July 2019

Know these PAN card rules to avoid tax department notice, penalties

Permanent Account Number (PAN) is the most important financial document in the country and it is becoming extremely important documents which will link all the transactions made by an individual with the Income Tax Department. It is a ten-digit
alphanumeric identifier, issued by Income Tax Department. Each assessee (e.g. individual, firm, company etc.) is issued a unique PAN.

It is to be noted that PAN essentially helps the income tax department ‘identify’ the person or a company undertaking the transaction such as payment of tax, depositing or withdrawing money from a bank or any of the specified transaction. All existing taxpayers who are required to file an income tax return, even on behalf of others, must have a PAN. 

Anyone who intends to enter into economic or financial transactions where quoting PAN is mandatory, must have a PAN. In Budget 2019, several PAN related changes were announced which are yet to be ratified by parliament. Here are some PAN that one needs to be aware of in order to avoid penalties:

1. Single PAN: As per the tax department, one individual must have only one PAN card. Obtaining/possessing more than one PAN is against the law and may attract a penalty up to Rs 10,000. Therefore, it is advisable not to obtain/possess more than one PAN.

If you have more than one PAN, you may fill and submit 'PAN Change Request' application form by mentioning the PAN which you are using currently on top of the form. All other PAN/s inadvertently allotted to you should be mentioned at item no. 11 of the form and the corresponding PAN card copy or copies should be submitted for cancellation along with the form.

2. Linking PAN with Aadhaar: Currently, under Section 139AA (2) of the Income Tax Act, the PAN allotted to a person shall be deemed to be ‘invalid’, in case the person fails to intimate the Aadhaar number. However, going forward, if a person fails to link their Aadhaar number with PAN, the PAN card will be made ‘inoperative’. The last date to link PAN with Aadhaar is September 30, 2019. 

It is worth mentioning that while the last date for linking is 30th September, as per Union Budget 2019, the operative word has been proposed to be changed from ‘invalid’ to ‘Inoperative’, with effect from September 1, 2019.

3. TDS deduction for a professional job: If you have hired a professional contractor for the construction of your house or a designer, architect or any professional for personal use, the new PAN rule required you to deduct TDS before making the final payment. The TDS amount is to be deposited with the government using the PAN of the professional.

At present, individuals are not required to deduct TDS on any payment made to a contractor or professional when it is for personal use. In case the individual is carrying on business or profession which does not require to be audited, there is no obligation for TDS to be deducted, even if the payment is for business or profession. 

However, the government felt that due to this exemption, payments made by individuals in respect of contractual work or for professional service was escaping the levy of TDS leading to possible tax evasion. In order to rectify this, Budget 2019 proposed to insert a new section 194M in the Act to provide for levy of TDS at the rate of 5 per cent on the amount paid on account of contractual work or professional fees by an individual if the payment amount is over Rs 50 lakh in a year.

4.Mandatory quoting of PAN in certain transactions: It is to be noted that holding PAN is mandatory in certain situations where an individual has income exceeding the basic exemption limit, filing of ITR or has a business turnover of over Rs 5 lakh. However, according to the government, in many cases people entering into high-value transactions, such as the purchase of foreign currency or huge cash withdrawal from the banks, do not possess a PAN.

In order to keep an audit trail of such transactions and curb illicit transactions, black money, The finance minister proposed in Union Budget to insert a new clause which requires every person, who intends to enter into certain prescribed transactions and has not been allotted a PAN, to apply for allotment of a PAN.

5. Inter-changeability of PAN and Aadhaar: In order to file an income tax return (ITR), one needs to have their PAN linked with Aadhaar. However, in the Budget, the government proposed to provide for inter-changeability of PAN with the Aadhaar number which will allow taxpayers without PAN card to file the return using Aadhaar card.

As per the proposal, any person who is required to quote their PAN under the Act, and who has not been allotted a PAN, may furnish or quote their Aadhaar number in lieu of PAN. In fact, the proposal also added that based on the Aadhaar details of the individual, PAN will be allotted to the individual. As of right now, PAN is a must for ITR filing but, going forward, one may quote their Aadhaar number in place of PAN.

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