PAN (Permanent Account Number)

What it means

PAN (Permanent Account Number) is a 10-character alphanumeric ID issued by the Income Tax Department. It links all your tax-related activity, such as returns, TDS, high-value transactions and refunds, to one identity. It stays the same for life and does not change with address.

How it works

The format is five letters, four digits and one letter, for example ABCPS1234K.

• First three letters: an alphabetical series.

• Fourth letter: type of holder. P for individual, C for company, H for HUF, F for firm or LLP, T for trust, A for association of persons, and so on.

• Fifth letter: first letter of the surname (for individuals) or of the entity’s name.

• Next four digits: a serial number. Last letter: a check character.

PAN must be quoted for filing returns, opening bank accounts, cash deposits above ₹50,000 in a day, buying or selling property above ₹10 lakh, and many other specified transactions. Individuals with Aadhaar can get a free instant e-PAN online. PAN must be linked with Aadhaar; an unlinked PAN becomes inoperative.

Example

Suresh has a fixed deposit earning interest of ₹1,00,000 in a year. His PAN became inoperative because he did not link it with Aadhaar.

1. Normal TDS on FD interest: 10% of ₹1,00,000 = ₹10,000.

2. With an inoperative PAN, TDS is generally deducted at 20%: ₹20,000.

3. Extra tax blocked: ₹20,000 minus ₹10,000 = ₹10,000, and refunds are not issued while the PAN is inoperative.

4. To fix it, Suresh pays the linking fee of ₹1,000 and links PAN with Aadhaar. The PAN becomes operative again after processing.

Key points to remember

• Holding more than one PAN is not allowed and can attract a penalty of ₹10,000. Surrender the extra one.

• Quoting a wrong PAN to your employer or bank leads to TDS not showing in your Form 26AS.

• Your PAN name must match your bank and Aadhaar records, or refunds and verifications can fail.

• Businesses also need PAN for GST registration, as the GSTIN is built on it.