Understanding Importance of PAN Card in Income Tax Filing

A PAN card is a 10-digit alphanumeric number, a crucial document for individuals and companies for various financial transactions.

Whenever any financial responsibility comes to mind, the most common answer for any individual would be a PAN card or an Income Tax filing.

An Income tax filing is an important step for the hassle-free financial transaction of an individual, a form, or a company. Without a PAN, it is not possible.

So, in this blog, we will discuss the importance of the PAN card for filing income tax returns for Indian taxpayers, along with its roles, consequences, and penalties for incorrect and non-filing of ITRs.

Importance of PAN Card for Income Tax Filing?

A PAN card is essential for Indian taxpayers for all tax-related activities under Section 139A of the Income Tax Act, 1961. Individuals, firms, and entities need to quote their PAN card in various financial transactions. Here are some points to remember for the importance of PAN card income tax filing in India.

Easy Identification of the Taxpayer: Through filing the Income tax return, the Indian government can easily keep track of the individual financial transactions, and make sure that they are paying the accurate amount of tax. In India, the PAN card serves as a unique identification number for taxpayers in India.

Provide Proof of Residence: The PAN card also acts as proof of residence for an Indian resident. It is also necessary that filled out in the same state of residence of the taxpayer.

Helps to Track Financial Transactions: A PAN card also helps to track the finances of the individual or a company. Through this, the government has an eye on all the financial transactions of the PAN cardholder. This also helps to avoid tax evasion by individuals or companies.

 Avoid Issuance of Multiple PAN cards: Through filing the Income tax return, the Income tax department gets all the taxpayers' financial and transaction records. It helps to avoid the issuance of multiple PAN cards of the same person and to protect against fraud.

Also Want to Know About PAN Card Eligibility Check Now!

What is the Role of a PAN Card in Income Tax Filing?

The involvement of a PAN card in filing an income tax return is very important. It provides a smooth and hassle-free filing of the ITR.

The role of a PAN card in ITR e-filing is given below:

1. Verification of Identity
   • Your PAN number acts as an identity proof, which provides you with security and access only to the individual to file the income tax return. You need to first register on the Income Tax e-filing PAN card portal to fill in the Income Tax return online.
2.  Simplify ITR
   • A PAN card helps you file your IT returns smoothly without facing any rejection or errors. As your PAN card is already linked to your bank accounts, employment information, and other financial assets. It becomes easy to file income tax with all the correct information.
   • Here is all the information included in your PAN card to file ITR:
     • Salary income
     • The interest you get from the Savings account and fixed deposit.
     • Tax Deduction at Source (TDS) and Tax Collected at Source (TCS).
   • This also helps you in the quick filing of income tax returns. Furthermore, it also reduces the chances of errors and mistakes while filing the ITR.
3. PAN and Aadhaar link
   • For filing the Income tax, the PAN card must be linked with an Aadhaar card. If your PAN is inoperative or not linked with an Aadhaar card, then it can lead to facing penalties.
   • Having an Income Tax PAN card linked with Aadhaar helps to avoid duplicate PAN cards and ensures more verification of the information of an individual taxpayer.
4. Refunds are directly credited to the account
   • If you have due tax refunds, then ot will be directly credited into your account as it is linked to your bank account.
   • For this, the important point is that your PAN card should be linked with the Aadhaar card and linked to your bank account; then, you will get all the refunds automatically to your bank account.
   • Through the electronic process, the funds process has now become quicker and easier.
5. Financial transaction and Deductions
   • A PAN card is also used for many financial transactions and deductions. Here are some of the various requirements for doing it:
     • To open a new bank account.
     • To buy mutual funds.
     • To buy or sell property for more than a certain value.
     • For purchasing bonds, shares, etc.
     • For getting a 4-wheel vehicle.

All the PAN card transactions are directly reported to the Income Tax authorities from their representative financial departments under the Statement of Financial Transactions (SFT).

You can also verify the investment, income, and declare it in your income tax filing. To claim more deductions and exemptions under the IT Act for these types of income, you can use Section 80C, where you must have a PAN card in India.

Major Reasons Why PAN Card is Necessary for Income Tax Filing

For Filing Income tax in India, a PAN card is a major requirement. Here are some of the top 6 reasons why your PAN card is essential for Income Tax Filing.

1. To file Income Tax Returns 
   • The main purpose of the PAN card is to file the income tax returns on the income that you have earned in India through any business or work. PAN card uses are different for various individuals and entities.
2. Use of PAN card to file Income Tax Refund
   • Individuals and entities that have a valid PAN are also used to file Income tax refunds. After paying all the taxes, they have to quote the PAN card number in the Application form.
   • The PAN should be quoted, as the government only uses it for the identification of tax-related activities.
   • If you fail to quote the PAN in Such an application, then you will not get the tax refund because it will ne not be acknowledged by the government.
3. To check the Income Tax Refund status
   • You can check the status of the income tax refund after filing out the Income Tax refund application. To check this status, you need to enter your valid PAN number of the individual/entity.
4. For Filing the TDS Certificate
   • A Tax deduction certificate is a method which is implemented by the government of India, through which the tax amount is deducted at the time of disbursing the amount to individuals.
   • Companies or any entities that deduct the TDS need to provide them with a TDS certificate, indicating the amount of tax that has been deducted.
   • The TDS certificate also involves the PAN number of the payee in all the documents, such as the Statement of Perquisites and the TDS return.
5. PAN number used to login Income Tax website
   • A PAN card is also necessary to log in to the Income Tax portal for e-filing their income tax returns, for which they will need a valid PAN number.
   • As the Income Tax Department is moving towards a digitalized system, through login at the portal of Income Tax, you can easily fill out your return with the e-filing option.
6.  A PAN card helps to avoid being overtaxed
   • Individuals who file an Income tax return are avoided by being overtaxed.
   • As the PAN card provides all the financial history, the government tracks all the transactions.
   • After calculating, they provide the amount of tax that should be paid after deductions.
   • For the individuals and entities who have not quoted their PAN number, the Indian government will levy a 30% tax irrespective of the tax slab from which an entity or individual comes.

How to Submit Returns and Avoid Getting Penalties for PAN Card Income Tax Filing?

For every individual or entity, a PAN Card for Income Tax requirements is essential for many financial purposes. This helps to improve financial and identification purposes. Let's see how to submit Income tax returns and avoid getting penalties for not following the Income Tax department Regulations and rules.

How to File an Income Tax Return Using a PAN Card?

Here is the detailed process given below to file the Income tax return for the individual taxpayer with the help of a PAN card.

1. Collect the supporting documents 
   • You need to gather all the necessary documents to file your income tax return through a PAN card, such as Form 16 (For only salaried individuals), bank statements, Proof of investments, and other documents.
2. Visit the Income Tax official Portal
   • Go to the Official Income Tax Department e-filing portal, and use your PAN card to register
3. Choose your Income Tax return form 
   • You need to select the appropriate application form to fill out your income tax return. The ITR Form 4 is for individuals with company income, and the ITR Form 1 is for salaried persons.
4. Enter the Information 
   • You need to provide the required information in the Income Tax return, such as personal information, tax deductions, income information, etc.
5. Calculate your Income Tax Return 
   • You need to check how much tax you need to pay, and whether you have any overpaid taxes or not. If there is a shortage of taxes, then you need to pay the required amount of tax.
6. Check and Submit the ITR
   • You need to double-check all the information before submitting the Income tax file.
   • For verification, you can transmit a copy of the acknowledgment, a hard copy, to the Centralized processing center (CPC) or use Aadhar OTP.

How to Avoid Penalties when Filing Income Tax Return with PAN Card?

Following all the rules and regulations of the Income Tax returns, which helps you to avoid penalties for Income Tax returns.

Given below are some of the points that you should avoid while filing Income tax returns.

• Providing incorrect information
  • If you provide incorrect or wrong information on the Income tax return, then you may get penalized. So make sure you always double-check the information when submitting the application, especially for tax deduction, income information, and PAN card number.
• Tax Evasion
  • Hiding your income results in high taxable income, and you may face legal action or a penalty of up to 100-300% of the actual penalty.
• Not filing Tax returns 
  • Filing to submit the income tax returns will also lead to a penalty of up to INR 5000, and exceeding your tax liability limits.
• Failed to Pay Tax 
  • If you do not pay tax, then the interest will be charged on the amount of unpaid taxes. This will also raise your tax obligation.

What Happens if I have no PAN or use PAN Incorrectly? 

If you have no PAN card or use it incorrectly, then you may face some legal consequences or penalties from the Income Tax Department.

Here are some of the major consequences mentioned below for not having a PAN card or using it incorrectly.

• Income Tax Filing gets Blocked 
  • If you used your PAN card incorrectly or for many fraudulent activities, or if you do not have a PAN card leads to not filing your income tax returns. To file an ITR, you must have a PAN number, and without a PAN card, you cannot file income tax returns.
• Gets High TDS Deduction
  • Not having a PAN card results in getting a high (Tax Deduction at Source) TDS Deduction, which is 20% until you get a PAN card and file an ITR refund claim.
• Face Restriction for Financial Transactions
  • You are no longer allowed to use many financial activities, such as investment, purchasing or selling property, or opening a bank account, as they all require a valid PAN card.
• Legal Penalties 
  • An individual may face legal penalties for not having a PAN card or incorrect PAN usage under Section 272B of the Income Tax Act.
• Inoperative PAN card
  • If your PAN card is not linked, then it may become inoperative. An inoperative PAN card results in not submitting ITR, no tax refunds, and getting high TDS rates.
• Difficulty in opening bank accounts
  • Without a PAN, you are not able to open your bank accounts, which is essential for smooth financial purposes.
• Trouble in getting loans
  • You may end up rejected when applying for a loan. Whether it is a personal loan, business loan, or a loan from any bank or financial institution, without a PAN, it is very difficult.
• Cannot claim refunds 
  • If you don't have a valid PAN card, then as a taxpayer, you are not able to claim tax refunds.

Final Thoughts 

An Income Tax PAN card is more than an identification document. It is your Tax Identification number, which helps you submit your ITRs smoothly. A PAN card is like the main pillar for the Income Tax filing, which allows you a hassle-free financial transaction.

Through a valid PAN number, which is linked to your Aadhaar card, you can easily file your Income Tax return. This also avoids getting penalties or any legal actions by the Income Tax Department.

For more information related to the PAN card or ITR filing, you can contact the Visament website. We have skilled and qualified agents who are there 24/7 to help you with all your queries and doubts and provide you with real-time solutions. You can also choose Visament for ITR filing, where we assist you and reduce the chances of errors and mistakes in filing Income tax returns.