What is a PAN?
PAN, or Permanent Account Number is a unique 10 digit alphanumeric that is given to each taxpayer by the Income Tax Department. It is a mandatory requirement for all financial transactions such as receiving salary, investing in mutual funds and also purchasing assets above a certain specified limit. The number helps track financial transactions and thereby prevent tax evasion.
Explaining the 10 digits…
The first 5 characters of the PAN are letters and the next 4 numbers, and the last one is an alphabet. The meaning of each number has been explained further.
- First three characters are alphabetic series running from AAA to ZZZ as issued by IT Department.
- Fourth character of PAN represents the status of the PAN holder.
C — Company
P — Person
H — HUF (Hindu Undivided Family)
F — Firm
A — Association of Persons (AOP)
T — Trust
B — Body of Individuals (BOI)
L — Local Authority
J — Artificial Juridical Person
G — Government
- Fifth character represents first character of the PAN holder's last name/surname.
- Next four characters are sequential number running from 0001 to 9999.
- Last character in the PAN is an alphabetic check digit.
Who needs to have a PAN?
- Anybody who earns a taxable income in India, including foreign nationals who pay taxes here. NRI's who wish to invest in India also require a PAN.
- Anybody who runs a business (be it retail, services or consultancy) that had total sales, turnover or gross receipt exceeding Rs 5 lakh in the previous financial year.
Some common transactions that require a PAN include purchase of a vehicle other than a two-wheeler; sale of purchase of immovable property above Rs.5 lakh or more; any mutual fund purchase.
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