Non-individual entities with high-value transactions must apply for PAN by May 31

Non-individuals like Hindu Undivided Family, company or trust who have entered into financial transactions exceeding Rs 2.5L will have to apply for a PAN card by May 31

Non-individual entities transacting over Rs 2.5L must apply for PAN: CBDT

An amendment to Section 139A of the Income Tax Act during Budget 2018-19 has made it mandatory for non-individual entities to apply for a PAN card by May 31. The move is as per the notification released by the Central Board of Direct Taxes (CBDT) dated November 19, 2018.
 
Who needs to apply for the PAN?

As per this amendment, non-individuals such as a Hindu Undivided Family (HUF), company, trust or LLP, etc. who are considered resident Indians as per tax laws and have entered into one or more financial transaction exceeding Rs 2.5 lakh in a financial year will have to mandatorily apply for a PAN card before May 31 of the subsequent financial year. 
 
The CBDT via a notification on December 5, 2018, stated the aforementioned date of May 31 as the deadline for the PAN application. It also stated that any person competent to act on behalf of the non-individual entity, such as a Karta, founder, director, partner, trustee, author, chief officer, principal officer or office bearer, etc. also needs to apply for a PAN (if not allotted one already) once the financial transactions exceed Rs 2.5 lakh.
 
PAN for such an entity and its representative officer(s) is mandatory even if the entity is not required to file Income Tax returns (ITR) for the relevant financial year.

Related: RBI makes Liberalised Remittance Scheme (LRS) transactions more stringent  

What are the consequences of non-compliance?

If the non-individual entity fails to apply for a PAN on or before May 31, it will incur a penalty for non-compliance and be levied other restrictions related to financial transactions.

The assessing officer can impose a penalty of Rs 10,000 as stated under Section 272B(1) for non-compliance of Section 139A of the IT Act. Additionally, the absence of a valid PAN will restrict many transactions as listed under Rule 114B of the Income Tax Rules, 1962.
 
The entity will not be able to open a bank account other than a Fixed Deposit. It will not be able to open a Demat account or invest in stocks and mutual funds. It will not be allowed to purchase or sell assets such as a motor vehicle or immovable property either.

Related: Finance Minister wants banks to issue NFC-enabled credit and debit cards

Going forward
 
The Income Tax rule previously did not provide any time limit for making an application to obtain a PAN for a non-individual entity. With the amendment of Rule 114(3) by the CBDT, the date of May 31 for the relevant assessment year now comes into effect, whence a non-individual entity enters into cumulative transactions exceeding Rs 2.5 lakh in the previous financial year.

In the absence of a PAN, the representing officer can fill Form 60, but no such option is available for the firm or entity. Also read: Identity checks to be mandatory for cash dealings of above Rs. 50,000.

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