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Monday, July 30, 2012

Why do foreign companies need a PAN number?

The permanent account number (PAN) is a necessary legal document not only for the individual, but also for a company (even if it is not registered or have an office in India). Any foreign company which is carrying on business in India, will need to have a company PAN card that carries a PAN no. This has been mandated by the Income Tax department of the government of India in the recent years.

So, you need to know what PAN number is and what purpose it serves?
It is a combination of letters and digits to form a code which numbers ten characters in length. It is issued by the Income Tax department, according to the legal framework laid down in the Income Tax Act of 1961. When you apply for a PAN number, you get this number on a laminated card called the PAN card. This is one of your most vital documents. You will need to quote your PAN number in all financial transactions as well as the income tax return.

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Companies having no presence in India and PAN number

PAN cards may act as important legal documents for individuals, but do companies need to get them too?
In order to answer this question, consider the following:

  • The PAN number was created as a reference number. So, the Income Tax department can track all your financial transactions using this code. That is why it is mandatory to quote your PAN number on your income tax document and your transactions. This is also the reason why you need to have a PAN card even if you are not eligible for paying income tax. 
  • All companies, be they registered in India or abroad need to pay tax just like an individual. So, in order to file their income tax return and other tax needs, they need a PAN number. They also need to quote the PAN number on each and every transaction. 
  • Companies just like individuals have to supply their Tax Registration Number (TRN) to the people who are paying them. A company can obtain a TRN only when it has its own PAN number. 
  • Since the government of India uses the PAN number as a tool to calculate the total amount of tax income which is being generated in the country, if your company is not registered in India, even then it should have a PAN number. 
  • The simplest yet most powerful reason why a company, either domestic or foreign, needs to have its own PAN number is that without the PAN number, the government of India will deduct tax at the highest possible rate. So, you may be losing out on some viable tax saving opportunities and this may turn out to be quite an expensive affair. 
  • The Income Tax Act of 1961 was amended and Section 206AA was inserted in 2009 by the Finance Act. According to this, all foreign parties which generate or provide payment to Indian counterpart have to provide their PAN number. This includes not only individuals but also companies, incorporations, limited companies or any other form of entities. This rule came into effect in April 2010.

Get your company’s PAN number to avoid excessive taxation
If you are running a foreign company in India, you can no longer ignore the issue of company PAN card. This is because, without a PAN card your company will face the highest rate of tax and you will be losing out financially.

It has become quite easy to obtain PAN card online from downloading the relevant documents from the websites of the two authorized organizations, i.e. the UTI Investor Services Ltd and the National Securities Depository ltd. However, you can also engage the services of a private brokerage firm to obtain your company’s PAN card easily and without hassle.


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