The income tax department recently changed the regulations that require individuals to quote their Permanent Account Number (PAN) for certain high-value transactions. The rules, applicable from January 1, rationalise the earlier law and benefit taxpayers in many ways. Says Tapati Ghose, partner at Deloitte Haskins & Sells: “The government has upped the limit for some transactions that needed individuals to quote PAN and also brought in some more high-value transactions under its ambit.” For example, earlier when a person purchased property worth Rs 5 lakh or more, quoting of PAN was mandatory. It is now Rs 10 lakh. Also, one doesn’t have to quote PAN for deposits above Rs 50,000 in post office savings bank accounts. Ditto with new telephone or mobile phone connections. Earlier, hotel and restaurant bills above Rs 25,000 needed PAN for payment through any mode. Now, only cash payments exceeding Rs 50,000 need PAN. The government has also developed a PAN activity monitoring and analysis software that will help the department to view, in chronological order, the entire ‘PAN life cycle summary’ of an individual. This means the taxman can know an individual’s entire transaction history where a PAN has been quoted, in any part of the country. The tool will also allow the taxman to view and capture various events of an assessee such as death, liquidation, fake PAN, amalgamation of PAN, etc, which can be used for investigations. Suresh Surana, founder of RSM Astute Consulting Group, says while this might result in more tax notices, those filing a return need not worry. He compares it to the time when the government had introduced the annual information return and asked financial companies to report transactions beyond a certain limit. For example, a bank is required to report if a person makes a payment of Rs 2 lakh or more for his/her credit card dues.
During the initial years, the department sent out notices frequently. But, it only asked to explain the source of funds and if the assessee had filed tax returns. If the source of funds was the income on which tax was paid, there was no further inquiry. The only thing experts worry is the new provision requiring PAN for purchase or sale of goods and services exceeding Rs 2 lakh per transaction. This is required even if the person is paying through cards. Surana says items such as gold and jewellery are high-value and in the specified limit. It’s also the source of investment for poor and rural households. Today, it’s not uncommon for households to buy television sets costing Rs 2 lakh. Keeping a tab on such spends and asking to explain source of funds for such transaction has nuisance value. If the person doesn’t have a PAN, they will need to give a declaration, using Form 60, explaining the reason for not having one. If you quote an incorrect PAN, the department can levy a penalty of Rs 10,000 under Section 272B. And if the taxpayer is selected for scrutiny and is unable to explain the source of high-value investments, deposit, or expenditure, there can be penalty of up to 300 per cent of the unpaid tax.