INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

PAN FOR ALL INVESTMENTS

Investors may soon have to quote PAN for all financial sector transactions, irrespective of the quantum of investment. PAN is set to become the common business number for all transactions in the financial sector, ranging from equities to debt, in the first stage. Small savings schemes are likely to be covered in the second stage.

According to senior officials, the government is considering a proposal to make PAN compulsory for all investments, irrespective of the size, so that all transactions can be monitored and later matched with the tax payer's income-tax returns.

PAN is a 10-digit alphanumeric number issued by I-T department, and each individual has to quote this number in his returns. Individuals also have to quote PAN in select financial transactions, including a host of high-value investments. For instance, quoting PAN is a must for investments of Rs 50,000 and above in IPOs and MFs. Investors opening fixed deposit or post office savings accounts of over Rs 50,000 also have to quote PAN. There is no such requirement in many small savings schemes.

All investors are income-tax assesses. There may be a few investors who are out of the tax net and don't have a PAN. Making PAN mandatory for all investments, irrespective of the size, will enable tax authorities to establish a clear audit TRAI.

Last year, for instance, market regulator SEBI made it mandatory for investors who have a trade order value of less than Rs 5 lakh to quote PAN or the unique identification number (UIN) obtained under MAPIN. All those investors transacting a trade order of Rs 5 lakh or more need a UIN. It was reckoned that dovetailing PAN with MAPIN will help in tracking the source of tax evaders.

Similarly, PAN has been made compulsory for investors who trade in derivatives on BSE or NSE and get tax breaks. Eventually, every financial transaction will be linked to PAN.

Already, agencies filing annual information returns-such as banks, credit card companies, mutual funds, registrar of properties-have to quote the PAN of their clients. The tax information network (TIN) hosted by NSDL captures this data and creates individual ledger statements. The ITS in turn is matched with the tax payer's returns to check if he has shortpaid or evaded tax. Eventually, all transactions that are covered under AIR will automatically come into the PAN basket.