The Hindu : Business : Insistence of PAN

Online edition of India's National Newspaper
Monday, Oct 25, 2004

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Business

Insistence of PAN - Is it justified?

QUESTION: A few years back, I had asked for a clarification regarding mode of payment of deposits above Rs. 20,000. It was clarified that banks are exempted from bar on cash transactions quoting Sec. 269SS. But some banks are insisting on IT PAN for cash transactions exceeding Rs. 50,000. This applies both to the receipts as well as payments and also demand deposits such as savings, and current account. Please clarify whether the bankers are right in insisting on IT PAN number in such cases. Should every one get the number?

ANSWER: Obligation to give PA Number, shortly PAN, to various transactions under the present law under Sec. 139A is different from obligation to pay or receive or repay loan or deposit by account payee cheques under Sec. 269SS and 269T. Sec. 139A requires that PAN should be given for various transactions prescribed thereunder. Even where they are not so prescribed, parties may like to have proper identity of the persons with whom they are dealing for the purpose of explanation to the tax or other authorities. A person is obliged to get PAN within the meaning of Sec. 139A, if such person has a business or profession with turnover exceeding Rs. 5 lakhs or is having income exceeding the minimum exemption limit of Rs. 50,000.

For others, instead of PAN, the law provides for declaration in Form No. 60, wherever PAN is required to be mentioned. Where PAN is available, declaration in Form 60 is not necessary, though there are many persons who wrongly insist on both. Items, for which PAN or declaration are mandatory, have been listed in Rule 114B. One such item is deposit in cash aggregating to Rs. 50,000 or more with any banking company during any day.

The deposit does not mean merely fixed deposit. Even payment in cash for purchase of bank draft requires identification of purchaser with PAN or declaration, so that the bankers are certainly right in insisting upon PAN.

PAN being more convenient than declaration in Form 60, many persons who are likely to have such transactions do get PAN, because PAN is given for the asking without any verification, as to whether it is really necessary. In fact, the departmental officers insist upon assessees getting a PAN, before accepting a return even from persons, who are covered by one by six rule, though it may not be obligatory on the part of all of them to get PAN.

Such numbers, which are hardly ever likely to be required to be used, would only load the system and create more complications, because of more persons with same name, making the task of verification difficult, so that such insistence is not only not correct but is unnecessary.

The alternative declaration in Form 60 is good enough for the purpose of identification and verification.

Interest on NSS 1987

Q: I am a senior citizen holding an account under NSS 87. I was shocked to find that the interest credited to my account for the year ending March 31, 2004 has been reduced from 11 per cent to 7.5 per cent. It is hardship enough for the account holder having to pay tax on every withdrawal, but such steep reduction in interest rate unilaterally is ruthless and a breach of contract, even if it is legal.

A: It is true that interest is coming down, so that the reduction of the rate of interest progressively to 9 per cent from March 1, 2001 to 8.5 per cent from March 1, 2002, 8 per cent from March 1, 2003 and 7.5 per cent from April 1, 2004 has been keeping pace broadly with other bonds. The Government has had the benefit of such deposits for such a long time after discontinuance of the Scheme in 1992, so that it is time that the tax liability on the withdrawal is relaxed. Exemption may be granted, at least, to the limited extent of interest credited or withdrawal may be allowed in instalments without tax. Complaints are received from time to time by the account-holders, whose accounts are locked up under NSS 1987 for more than a decade. Since it can be repaid without liability to tax to successors in the event of death of the account-holder, there is not much loss of revenue, if permission with reduced liability is granted during the lifetime of the account-holder. Probably permission to convert the fund to other securities with some limited lock-in period may be permitted. Senior citizens may be permitted to convert the balance to 9 per cent bonds available to them, so that there is no need for Government to make immediate return. These are some of the suggestions received from the readers from time to time. As the scheme is discontinued, the question of liquidating the funds would certainly require consideration on the part of the Government.

S. Rajaratnam

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Insistence of PAN - Is it justified?