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PAN

Tax

Permanent Account Number

A unique 10-character alphanumeric identifier issued by the Income Tax Department to every taxpayer in India. PAN is mandatory for all financial transactions above specified thresholds and for filing income tax returns.

Definition

PAN (Permanent Account Number) is a unique 10-character alphanumeric identifier assigned to taxpayers and other entities by the Income Tax Department of India. Structured as AAAAA9999A (5 letters + 4 digits + 1 letter), PAN serves as the primary financial identity of an individual or entity in India's tax and financial system.

Every bank account, investment account, loan, high-value transaction, and tax filing in India requires PAN. It is the thread that links all of a person's financial activities to their tax record, enabling the Income Tax Department to cross-reference income, investments, and tax liability.

PAN is not proof of citizenship — it can be held by NRIs, foreign nationals, and corporate entities. It is specifically a tax identifier.

Formula

PAN Structure = [First 5 letters] + [4 digits] + [1 letter]

Decoding example — AABCP1234C:

  • Characters 1–3: "AAB" — alphabetic series (assigned sequentially by IT department)
  • Character 4: "C" — entity type (C = Company; P = Person; F = Firm; H = HUF; A = AOP; B = BOI; G = Govt; J = AJP)
  • Character 5: "P" — first letter of the PAN holder's surname
  • Characters 6–9: "1234" — sequential number
  • Character 10: "C" — check digit (alphabetic)

Worked Example

Tax filing with PAN:

Priya earns ₹8 lakh salary. Her employer deducts TDS of ₹35,000 and credits it to Priya's PAN in the system.

When Priya files her ITR, the pre-filled data from the IT portal shows her salary income (from Form 16) and TDS credit (from Form 26AS) — all linked via her PAN.

Her actual tax liability = ₹32,500. Since TDS was ₹35,000, she claims a refund of ₹2,500 — credited to her bank account linked with the same PAN.

Without PAN: Her bank would deduct TDS at 20% on FD interest instead of 10%, and she couldn't file a return to claim the refund.

Key Things to Know

  • One PAN per person: Having more than one PAN is illegal and attracts a penalty of ₹10,000. If you inadvertently received two PANs, surrender the extra one to the Assessing Officer to avoid penalty.
  • PAN-Aadhaar linking is mandatory: The Income Tax Department has made PAN-Aadhaar linkage compulsory for resident Indian taxpayers. Unlinked PANs are rendered inoperative (though functional for some purposes with higher TDS rates). Linking is done on the IT portal or via SMS.
  • NRI PAN: Non-Resident Indians are required to obtain PAN if they have taxable income in India (rental income, capital gains on Indian investments, etc.). NRIs can apply for PAN using Form 49AA.
  • KYC compliance: Almost all financial products in India use PAN as a primary KYC element. Mutual funds, stockbrokers, insurance policies, bank accounts, and loan applications all collect PAN. Non-disclosure in applicable transactions attracts TDS at 20% and may result in the transaction being flagged.
  • Form 26AS and AIS: Your PAN is the key that unlocks Form 26AS (tax credit statement) and the AIS (Annual Information Statement) — both available on the IT portal. These documents aggregate all tax deducted, paid, and all reported financial transactions against your PAN.

Related Calculators

Income Tax Calculator →Calculate income tax for FY 2025-26 under old and new tax regimes. Includes 87A rebate, surcharge, cess, and deductions (80C, 80D, HRA). India income tax.
Old vs New Tax Regime Calculator →Compare income tax under old and new regime for FY 2025-26. Enter your income and deductions to instantly see which tax regime saves you more money.

Related Terms

TDSTax Deducted at SourceITRIncome Tax ReturnForm 16TDS Certificate from EmployerGSTGoods and Services Tax
Frequently Asked Questions
Is PAN the same as Aadhaar?
No. PAN is issued by the Income Tax Department and is the primary identifier for all financial and tax transactions. Aadhaar is issued by UIDAI and serves as identity and address proof linked to biometrics. The two are linked under the PAN-Aadhaar seeding requirement (mandatory for taxpayers). PAN is used for taxes and financial transactions; Aadhaar is used for identity verification across government services.
What transactions require PAN in India?
PAN is mandatory for: filing ITR, all transactions above ₹2 lakh in cash, opening a bank account, purchasing/selling property above ₹10 lakh, fixed deposits above ₹50,000, mutual fund investments above ₹50,000, credit/debit card applications, purchase of motor vehicles, hotel bills above ₹25,000, and foreign exchange transactions above ₹10,000. Banks and financial institutions are required to collect PAN for KYC compliance.
What happens if I don't link PAN with Aadhaar?
Failure to link PAN with Aadhaar (the deadline has been extended multiple times) results in the PAN being rendered inoperative — you cannot file returns, pending refunds are blocked, and TDS/TCS is deducted at a higher rate (20% vs standard rate). As of 2024, unlinked PANs are treated as inoperative for most financial and regulatory purposes. A penalty of ₹1,000 applies for linking after the deadline.
Can a company or firm have a PAN?
Yes. Every legal entity in India that is subject to tax or undertakes significant financial transactions must have a PAN: companies, LLPs, firms, trusts, HUFs (Hindu Undivided Families), and even NRIs and foreign companies with Indian income. The PAN structure differs slightly — the 4th character indicates entity type (P for individual, C for company, F for firm, A for AOP, B for BOI, H for HUF, G for government).
What is TDS and how does PAN affect it?
TDS (Tax Deducted at Source) is tax deducted by the payer (employer, bank, buyer of property) before making payment to you. When you provide your PAN, TDS is deducted at the normal rate (10% on bank interest, 30% on winning, etc.). If you don't provide PAN, the payer must deduct TDS at 20% (or the applicable rate if higher) — significantly more than normal. Providing PAN ensures accurate credit of TDS to your account in Form 26AS.