Income Tax Taxation

Is PAN Number Required For Proprietorship Firms?

PAN stands for Permanent Account Number. It is an essential document as per the Income Tax Act, 1961, which all taxpayers should possess. PAN Number is a tax identity for any individual or business generating income.

What is a PAN Number?

A PAN is a unique number assigned by the Income Tax Department to an individual or a company for taxpaying. The PAN has all the tax-related information of the taxpayer in one place. It permits the Income Tax Department to maintain detailed records for all the taxpayer, helps in preventing tax evasion.

The main objective of a PAN is to track and prevent tax evasion. The person or the company that holds a PAN enjoys certain benefits offered by Government and will be liable to pay taxes at only fixed rates by the Government.

A PAN is used for a valid identity proof. Also, it is mandatory to submit a copy of PAN Number while selling or buying vehicles, property, and purchasing gold in large quantities.

Benefits of a PAN Number

The following are the benefits:

• Filing of IT Returns: Having a PAN is mandatory as per the Income Tax Act, 1961. Every person or company who is eligible to pay income tax has to file IT Returns.
• Valid Proof of Identity: A PAN is a valid ID Proof.
• IT Refund: PAN is required to receive an IT Refund.  
• Opening a Business: PAN is required to start a company, business. TRN (Tax Registration Number) is required to start a business, and it can only be obtained if the company has a PAN.
• Opening a Bank Account: A business entity must have a bank account in its name, and for opening an account, the entity must have a PAN.
• Opening a Demat Account: A PAN is required to hold shares in the dematerialization form.
• Foreign Travel: A PAN is required for foreign cash payments above Rs. 50,000.
• Time Deposit: All the deposits made with the post office, co-operative banks, or non-financial banking companies and deposits amounting to Rs. 5 Lakh or more every year will require a PAN.
• Hotel and Restaurant Bills: A Bill payment of more than Rs. 50,000, the buyer requires a PAN.
• Cash cards and pre-paid instruments: PAN is required for transactions more than Rs. 50,000 in cash.
• Purchase or sale of goods: PAN is required for the transaction of more than Rs. 2 Lakh for purchase or sale of any goods or services.
• Bank drafts, bank cheques and pay orders: A PAN is required for bank drafts, banker’s cheques and pay orders for transactions over Rs. 50,000 in a day.

Steps to apply for a PAN Number for a sole proprietorship

The PAN of an individual can be used as a PAN for a sole proprietorship.

To obtain a PAN card, one needs to submit an application to their nearest Tax Information Network facilitation centre (TIN-FC) or the nearest branch of the National Securities Depository Ltd (NSDL) from their PAN Department. The NSDL also accepts PAN card applications online.

The steps are as follows:

• Visit www.nsdl.co.in and fill out the PAN application.
• Select ‘Form 49A’ from the drop-down menu. Select the ‘individual’ category for the sole proprietorship.
• Fill in the details. Enter the Captcha code and click ‘Proceed’.
• Make the requisite payment.
• Click submit after doing all the steps above.

Documents required to apply for a PAN Number

The following documents are required while applying for a PAN for a proprietorship firm:

• ID Proof can be anyone of the following:

1. Driving License;
2. Voter ID;
3. Passport; or
4. A photo ID card, issued by Public Sector Undertaking or the Central or State Government

• Address Proof can be anyone of the following:

1. Aadhar card;
2. Passport;
3. Driving license;
4. Property registration document;
5. Telephone Bill;
6. Water Bill;
7. Electricity Bill; or
8. Pension Payment Order, etc.

• Date of Birth Proof can be anyone of the following:

1. Birth Certificate (issued by the Municipal Authority or any authorized authority);
2. Matriculation Certificate;
3. Passport;
4. Driving license;
5. Domicile Certificate; or
6. An affidavit under oath stating the date of birth of the applicant.

Why is it essential for a proprietorship to have a PAN Number?

The Income Tax Act, 1961 mandates a PAN Number for all individuals, companies and partnerships. Having a PAN is beneficial to individuals and companies. For a sole proprietorship, it is not mandatory to have a PAN under the proprietorship name; it can use the PAN of the individual responsible for the proprietorship.

A sole proprietorship is directly linked with the owner and he/she is solely responsible for the sole proprietorship and all the liabilities/debts attached to it. The PAN can be used for any number of proprietorship firms he/she owns and the same PAN Card can also be used for registrations such as MSME, GST or IEC. The IT Return can also be filed using the same PAN.

Conclusion

PAN is an essential document as per Income Tax Act, 1961, which all taxpayers should possess. PAN Number is a tax identity for any individual or business generating income. Separate company pan cards for sole proprietors’ are not issued for such firms as they do not have a separate legal existence like a company.

Read our article:What is the Difference between PAN and TAN?