Why is a PAN Card Compulsory and How Does it Work?

By | November 12, 2021

Whether you are planning to buy a house, settle up a business, get your favorite car or receive a handsome salary in your account, you will need a permanent account number. Further, if you are looking to work in the stock market or need to convert your Indian rupees currency into some other foreign currencies, then you need a PAN Card. 

PAN Card issued by the Tax Department, is one of the most important documents for an individual or a company. All the financial activities performed are recorded under this particular thing to keep it all unified. 

Permanent Account Number (PAN) Card is a card allotted to every citizen or let us say the taxpayers of the country, India. It can be regarded as an electronic system to keep track of every information on the taxpayers of the country.

Whether it is the PAN card of a person or a company, all the tax-related information is recorded against every single card. Thus, this also acts as a storage of information that can be shared across the country. Also, this is why two entities (a person or a company) can never have the same PAN card number. 

Why is PAN Card Compulsory?

As we understand, a PAN Card is necessary to keep track of every financial transaction of an individual or company. This helps the Income tax department to decide the tax rate for them. However, there are several other reasons why a PAN Card is important and a must-have for Indian Citizens. One should have a PAN Card Number broadly for the following:

  • When you have to pay for the direct taxes.
  • When you are supposed to file for the income tax returns
  • When you have to avoid the deduction of certain taxes at a higher rate than due
  • When you perform certain transactions that are way above the limit.

Uses of PAN Card

Let us learn more about the usage or benefits of importance of having a PAN Card:

IT Returns Filing

Individuals and entities who are eligible for income tax should be filing their IT returns. And, a PAN Card becomes a necessary document when filing for IT returns. Moreover, this is the main reason why people apply for IT returns in the first place.

Opening a Bank Account

When you go to open a bank account, there are a lot of documents needed in order to verify you. A PAN Card is one such document that you need to open a bank account- no matter if it’s a current one or a savings one. All kinds of banks- both private, public, and co-operative banks require a PAN Card for opening a bank account.


Sale or Purchase of Motor Vehicle

When you are planning to buy a motor vehicle of rice above Rs. 5, 00, 000, then you have to show your PAN Card.

Applying for Debit or Credit Card

Since all your transactions are recorded under PAN Card, this helps in determining the issuance of debit and credit cards.

Purchasing Jewelry or Property

If you are buying jewelry valued at more than Rs. 5, 00, 000, then you must have a PAN Card. On the other hand, if you are buying or renting a property, you need to show your PAN Card.


For Cash Deposits, FD, Loans, MF, etc.

When you are making hefty cash deposits or trying to open a fixed deposit in a bank amounting to more than Rs. 50, 000, then you need to submit a PAN Card as your document for verification. This helps in avoiding fraudulent activities, scams, or money laundering of any kind.

Proof of Identity and Address

This card holds the vital information of an individual- name, address, and a photograph. Thus, it is used as an ID Proof in every scenario required.

How Does PAN Card Work?

PAN Card is a unique 10 digit alpha-numeric identity given to each taxpayer, as we discussed earlier. It also serves as an identity proof of a particular country. PAN card is compulsory when it comes to carrying out financial transactions.

For example, if you are receiving your salary, or receiving a professional fee for a service, having a sale or purchase of certain assets above a limit, having mutual funds, etc.

Since each number allotted is unique to each PAN Card Holder, there can be no misuse once the card is lost- even when you have changed the address or name.

PAN Card works as identity proof as it holds the person’s name, address, and a photograph for quick verification. It also allows the Tax Department to work upon the slab of Tax returns one is eligible for. For individuals who do not have a PAN Card, they are subject to pay 20% of taxes- no matter what kind of tax bracket they come under.

Category: PAN