Permanent Account Number (PAN) is a ten-digit alphanumeric code issued by the Income Tax Department of India mainly to a tax payer. It is unique to an individual or entity and is valid across India. It is mandatory for entering into financial transactions like buying and selling of Mutual fund units, property, loan transactions, etc. An entity (Company, LLP etc.) is also mandatorily required to have PAN. Now, a corporate entity like a private limited company are issued PAN at the time of incorporation.
Non-residents: Do they need to have PAN
Non-residents were required to obtain PAN in certain specified cases like to make investment in Mutual Funds in India, to purchase property in India, employment etc. A Non-resident, therefore, having no financial transactions in India, was not required to have PAN.
Non-residents as directors
Seeking to widen the tax base and in order to use PAN as Unique Entity Number (UEN) for non-individual entities, the Finance Act, 2018 made PAN mandatory for any entity entering into a financial transaction of an amount aggregating to INR 250,000/- or more, in a financial year, with effect from April 1, 2018. Even in the absence of this provision, the banks mandated PAN for opening of bank account of all entities.
What is surprising is that the law now requires that the managing director, director, partner, trustee, CEO, founder or any person competent to act on behalf of such entities shall also apply for allotment of PAN.
Any Non-resident, who happens to be a director of such entity, will therefore have to apply for PAN irrespective of whether he has any financial transactions in India or not.
The scope of the above amendment is vast and ambiguous as it covers all the persons from Director to any person competent to act on behalf of the entities, who might be anyone, resident or non-resident.
As per our understanding, the above amendment is onerous and hindrance to ease of doing business. Some key concerns on the above amendment are as under:
- There should not have been requirement of PAN on a Non-resident merely because he is a Director of an Indian company. Their identity and other particulars are well captured through DIN as required at the time of becoming Director.
- The provision should have only covered non-resident persons that have income which is chargeable to tax in India.