Individuals who invest heavily in mutual funds, real estate and IPOs, but do not have a PAN card, will soon get one from the income-tax department. They will have no choice but to accept the card and give this number for at least seven financial transactions. Simply put, they may not be able to use Form 60 in these transactions. Form 60 is a used by those who do not have a PAN to declare certain investments and expenses.
The income-tax department, which is empowered to allot PAN suo-moto, is planning to issue these cards to individuals who do not declare taxable income. They could be out of the tax net and yet, on an investment binge. Information on such investments is also being sourced from third parties including banks and mutual funds through the annual information returns a tool to track tax evaders. However, PAN is missing in several transactions in the AIR, resulting in what are known as orphan entries.
One of the reasons for orphan entries is that high-value investments are being made by individuals who are not filing tax returns. If PAN is alloted to this segment, it would be easy to pin down those who have assets disproportionate to their known sources of income, said a senior government official.
The CBDT is finalising the norms for suo-moto allotment of PAN, which was announced in the 2006-07 budget.For starters, those who file income-tax returns have to compulsorily quote their PAN. It is also mandatory to quote PAN in a host of financial transactions such as buying and selling a house valued at over Rs 5 lakh, buying and selling a car, opening a fixed deposit or a post office savings account of over Rs 50,000 and so on. The IT departnment is likely to allot PAN only to those using Form 60.
The legal obligation on individuals to quote PAN has, in fact, been in force for quite some time. The onus of quoting PAN of clients now rests with the third parties filing AIR as well. Seven authorities file AIR. Mutual funds, for instance, list out investors who pay Rs 2 lakh or more to acquire units.
Banks give a list of their clients with cash deposits of over Rs 10 lakh, while credit card companies furnish a list of those who run up bills of over Rs 2 lakh.
Similarly, the registrar of property files AIR on property deals valued at over Rs 30 lakh. The PAN-based data on investments are matched with the individuals tax returns to check of he has evaded or short paid taxes.