Individual foreign investors seeking entry into Indianstock markets will now have to acquirePermanent Account Number, or PAN, the passport to allfinancial transactions. The mandatory PAN was announced recently by the finance ministry while outlining the framework for foreign retail investment in mutual funds, a promise made in the February budget.

"The Central Board of Direct Taxes, the apex direct taxes body, will soon issue an instruction in this regard," a finance ministry official said. However, to ensure that the requirement does not make investing cumbersome, PAN will be issued on the basis of know your customer (KYC) scrutiny of the investor.

KYC conditions prescribed by the market regulator, Sebi, are quite stringent making them PAN plus, said the official.

However, experts say tax authorities should clarify that acquiring a PAN will not trigger an obligation to file income tax return here. "Primary concern these investors have is that PAN could trigger an obligation to file return," said Amitabh Singh, partner, Ernst & Young. PAN is a 10-digit alpha-numeric tax payer identification number that is allotted to an individual and is increasingly required to be quoted with financial transactions.

The government has allowed individual foreign investors to invest in domestic MFs, thus creating a new class of investors called Qualified Foreign Investors.

Sebi is expected to notify the norms governing these investors soon. These investors would be able to put money into domestic MFs through Unit Confirmation Receipts (DPs) or Depository Participant route. QFIs could be individuals and bodies, including pension funds, and cumulatively they can invest up to $10 billion (about .`45,000 crore). Dividend income earned by these investors would be tax-free. At present, only FIIs, sub-accounts registered with SEBI and NRIs are allowed to invest in MF schemes in the country.