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The government has made the Permanent Account Number (PAN) card compulsory for key tax compliance and filing processes concerning Goods and Services Tax (GST) and corporate income tax. Experts say this crucial change affects all types of business entities in India.
As per new guidelines, business owners must obtain a valid PAN card before registering under GST or filing income tax PAN card returns. Non-compliance can lead to penalties or disruption of business operations.
“The PAN card for business in India serves as a unique 10-digit business identifier across all tax processes. Not having one can stop companies from undertaking essential transactions like GST registration, filing GST returns, claiming tax refunds or remitting TDS,” said one of the spokespersons of The Institute of Chartered Accountants of India (ICAI).
Here is a look at how the PAN card impacts GST and corporate tax for different types of businesses:
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GST Registration
To register under the GST system, all businesses must submit details like business registration documents, bank accounts, and, most importantly, the PAN card. Barring non-resident taxable persons, all entities need to provide PAN for successful GST registration.
The same PAN can be used to obtain state-wise GST registrations based on places of business operations in different states. The portal verifies PAN electronically with Income Tax databases before approving registration.
GST Return Filing
Experts state that PAN has been mandated in all types of GST returns, be it monthly summaries like GSTR-1 and GSTR-3B or annual returns.
“If a business quotes an incorrect PAN or fails to provide it while filing GST returns, the portal will reject the submitted return,” said ABC, a GST Practitioner based in New Delhi.
This can lead to late fees or disruption in claiming input tax credit. Trade associations have requested the government to relax PAN requirements for return filing for smoother GST compliance.
Claiming Input Tax Credit
Businesses can claim credit for GST paid on business purchases only if suppliers have issued invoices with valid PAN details.
“If vendors mention incorrect PAN while issuing invoices, input tax credit cannot be claimed on those invoices as the portal cannot verify details. This increases working capital costs for companies,” said Pawan Gupta, a Chartered Accountant.
Experts have suggested that the government build in checks before denying input credit due to PAN mismatches to ease doing business.
Corporate Tax Return Filing
All companies and LLPs have to mandatorily quote PAN details while filing income tax returns, regardless of turnover levels. Non-compliance can attract a Rs 10,000 penalty as per Section 272B.
PAN also plays a role in other processes, such as TDS payments, the issue of TDS certificates, and the digital signing of tax returns by authorised signatories.
“With PAN-Aadhaar linking mandated by March 2023, companies should evaluate if existing PAN details of all directors/partners are updated in income tax records,” said Rashmi Desai, an audit firm partner.
Penalties for Non-Compliance
Experts advise businesses to ensure they have a valid PAN before GST registration or return filing to avoid penalties for non-compliance. Other consequences include input credit loss, processing delays for refunds, and scrutiny from tax officers.
“My GST registration was rejected thrice due to incorrect PAN details provided. Later I realised that our CA had made an error in one digit while submitting the registration form,” said XYZ, a trading firm owner from Jaipur.
What Happens if a Business Doesn’t Have a PAN Card?
It is not uncommon for businesses to overlook the importance of obtaining a PAN card, especially when starting out. However, this can lead to a series of complications down the road. If a business doesn’t have a PAN card, it will face issues like:
1. Inability to Register for GST: A business cannot register for GST without a PAN card, which will prevent it from conducting interstate trade and claiming input tax credit.
2. Issues with Tax Filing: A business cannot file tax returns or claim deductions without a PAN card, which can result in penalties for non-compliance.
3. Complications with Loans: Financial institutions may deny loans to businesses that lack a PAN card because there is no formal identification mechanism.
Conclusion
The PAN card has become the key enabling document for essential tax compliance and filing processes concerning GST, income tax and TDS for all kinds of businesses in India. The non-availability of the correct PAN card can disrupt key activities like GST registration, tax payment, filing returns, and claiming legitimate tax refunds due to the lack of proper identification. It can also attract monetary penalties for non-compliance in certain cases. Industry experts advise all types of business entities to proactively obtain a valid PAN well in time and ensure its accurate quoting across different tax transactions.
With the government also mandating PAN-Aadhaar linking soon, businesses need to act now to avoid any compliance issues in the future. Having proper PAN details can go a long way in facilitating smooth tax filing and compliance for companies.
