Sole Proprietorship: The Benefits Of Getting A Pan Card

A sole proprietorship is a business with no legal distinction between the business entity and its owner. This means that the owner is responsible for all debts and liabilities. Due to its simplicity, a sole proprietorship is a popular business type. In India, a sole proprietorship does not require a separate PAN (Permanent Account Number) card. The owner can use their personal PAN card for their firm, and for any number of proprietorship firms they own. This is because a sole proprietorship does not have a separate legal existence, unlike a company or firm. A PAN card is, however, mandatory for all taxpayers in India, as per the Income Tax Act, 1961.

Do sole proprietorships need a separate PAN card?

A sole proprietorship is a business that is managed and run by a single person. It is a popular business type due to its simple setup, simplicity, and low cost. In the case of a sole proprietorship firm, it is not necessary to apply for a separate or new business PAN card. This is because, unlike a company or firm, a sole proprietorship does not have a separate legal existence. The owner of the business is personally liable for all debts and is responsible for the registration of their business.

The owner of a sole proprietorship can use their personal PAN card for running their business. This is because a sole proprietorship is directly connected to the owner of the business. The PAN card provides a tax identity for the individual or business and is required for all taxpayers in India, as per the Income Tax Act, 1961. It is also necessary for obtaining various licenses and for most business registrations and certifications. Therefore, the owner of a sole proprietorship can use their own PAN card for their business and does not need to obtain a separate one.

The PAN card of the owner serves as the PAN card of the proprietorship firm. The owner can use the same PAN card for any number of proprietorship firms they own. The PAN card is also necessary for filing Income Tax returns, claiming tax deductions, and making certain financial transactions and cash payments. It is also required when selling or buying immovable property worth more than ₹10 lakhs.

To apply for a PAN card, individuals must submit proof of identity, date of birth, and address. The application can be made online through the NSDL website, and hard copies of the supporting documents must be sent to the NSDL office in Pune.

What are the requirements for a sole proprietor to obtain a PAN card?

A sole proprietorship is a business that is managed and run by a single person. It is the simplest form of business to set up and operate, with minimal compliance requirements. Due to the nature of a sole proprietorship, where there is no legal distinction between the business and the owner, the requirements for obtaining a PAN card are straightforward.

The good news is that a sole proprietor does not need to obtain a separate PAN card for their business. This is because the business and the owner are considered the same entity. The owner can simply use their personal PAN card for their business. This PAN card can be used for any number of proprietorship firms owned by the individual.

However, if a sole proprietor wishes to obtain a PAN card in their business name, they can do so by following a few simple steps. The process is as follows:

• Visit the NSDL website and fill out the PAN application online.
• From the 'Application Type' menu, select 'Form 49A'.
• The owner should then choose the appropriate business type from the 'Category' menu. For a sole proprietorship, the category selected will be 'individual'.
• Provide the required personal details such as name, birth date, contact number, and email address.
• After entering the Captcha code, click 'Proceed'.
• A token number will be generated to confirm successful registration.
• Continue with the PAN application form, providing any additional details as required.
• Submit the digital e-KYC.
• Provide the AO (Accounting Officer) Code, which can be found on the NSDL website.
• Go to the declaration section and document details, then click 'Next'.
• Declare the documents being uploaded, such as proof of identity, birth date, and address.
• Review the application for any errors and make any necessary corrections.
• Proceed to the payment section and pay the application fee using a debit/credit card, net banking, or demand draft.
• After payment, an acknowledgment receipt with a 16-digit number will be sent to the applicant's email address.
• Verify and check the status of the PAN card application using the 16-digit number on the NSDL website.
• Send the self-attested hard copies of the required documents, along with the printed application form, two passport-sized photos, and the signed acknowledgment receipt to the PAN Services Unit of Income Tax at the NSDL office in Pune.

It is important to note that the hard copy of the application must reach the NSDL office within 15 days of the online application. Once the application and documents have been verified, the PAN card will typically be issued within 15 business days.

The documents required for a sole proprietor to obtain a PAN card include:

• Proof of identity: Driving License, Voter ID, or Passport.
• Proof of address: Telephone Bill, Electricity Bill, Water Bill, or Pension Payment Order.
• Proof of birth date: High School leaving certificate or pass certificate with the date of birth mentioned.

Additionally, to apply for a PAN card, a scanned photograph, identity proof, and address proof are required. The application fee for an Indian resident is Rs. 110, while for a foreign resident, it is Rs. 864.

In summary, while a sole proprietor can use their personal PAN card for their business, they also have the option to obtain a PAN card in their business name by following the above-mentioned process and providing the necessary documents.

What is the procedure for applying for a PAN card?

Applying for a PAN card can be done both online and offline. Here is a detailed step-by-step guide for both methods.

Online Application Process:

• Go to the official website of either NSDL or UTIITSL.
• Choose the application type: 'New PAN - Indian Citizen (Form 49A)' or 'New PAN - Foreign Citizen (Form 49AA)'.
• Select the category: 'Individual', 'Association of Persons', 'Body of Individuals', etc.
• Fill in the required details, such as name, date of birth, email, and mobile number.
• Submit the form and note the token number sent to your email or mobile.
• Continue with the PAN application form, selecting the mode of document submission and whether a physical PAN card is required.
• Fill in your personal details, contact information, and AO code.
• Upload the necessary documents, such as proof of identity, address, and date of birth.
• Make the payment and keep the acknowledgment number for future reference.

Offline Application Process:

• Download Form 49A (for Indian citizens) or Form 49AA (for foreign citizens) from the NSDL or UTIITSL website.
• Fill in the form with the required personal and obligatory information, using BLOCK letters and black ink.
• Attach two recent colour passport-sized photographs to the form.
• Attach self-attested copies of your proof of identity, address, and date of birth.
• Submit the completed form, along with the required documents, at the nearest PAN centre or NSDL head office.
• Pay the applicable fees, which vary depending on the mode of application and dispatch method.

The processing time for a PAN card application is typically 15-20 working days, after which the PAN card will be sent to the provided residential address.

What are the benefits of having a PAN card?

A PAN card is a Permanent Account Number, a unique 10-digit alphanumeric code given to entities and individuals earning income in India. While it is mandatory for those who fall within the taxable income bracket, it is still highly recommended for those who do not. Here are some of the key benefits of having a PAN card:

Taxation

One of the primary purposes of the PAN card is for taxation. It is mandatory to quote your PAN when filing income tax returns. Additionally, linking your PAN card to your bank account can help reduce the Tax Deducted at Source (TDS) rate. For example, if you have annual interest earnings exceeding ₹10,000 on savings deposits and have not linked your PAN to your bank account, the bank will deduct TDS at a rate of 30% instead of 10%.

Business and Transactions

PAN is often required for various business and transaction purposes. It is mandatory when starting a business, as companies need to obtain a Tax Registration Number (TRN) to trade and file tax returns, which can only be done with a PAN. PAN is also necessary for purchasing or selling immovable property, vehicles (except two-wheelers), securities, and goods or services with an invoice amount exceeding certain thresholds.

Banking and Investments

A PAN card is essential for opening a bank account, with the exception of zero-balance accounts. It is also required for cash deposits, bank drafts, pay orders, and banker's cheques exceeding ₹50,000. Additionally, a PAN card is mandatory when investing in mutual funds, debentures, bonds, or insurance policies.

Identity Proof

A PAN card serves as a valid identity proof, as it contains your name, date of birth, and photograph. It is often accepted as proof of identity when applying for a new telephone connection or making cash payments for travel or hotel and restaurant bills exceeding certain amounts.

Claiming Tax Refunds

If your tax liability is more than the amount already paid through TDS, you can claim a refund. However, to receive the refund, you must have a PAN card-linked bank account.

What are the consequences of not having a PAN card?

A Permanent Account Number (PAN) is an important document that all taxpayers in India must possess. It is a crucial piece of identification that links an individual or business to their tax obligations. While it is not restricted to Indian citizens or those above the age of 18, anyone with a source of income who files income tax returns or intends to engage in financial transactions within India is required to have a PAN. This includes foreign nationals working in India and earning a taxable income, as well as children with taxable income.

Not having a PAN card can lead to several consequences and inconveniences. Firstly, without a PAN, individuals are subject to higher tax deductions. For example, banks will deduct tax at a rate of 20% or higher on annual interest earnings from fixed deposits if a PAN is not provided. Secondly, certain applications and declarations, such as those under sections 197 and 197A, cannot be filed without quoting a PAN as it is mandatory. Thirdly, there is a penalty of Rs. 10,000 for not quoting a PAN under section 272B. Additionally, a PAN is required for various financial transactions, including the sale and purchase of motor vehicles (excluding two-wheelers), applying for credit or debit cards, making cash payments over Rs. 50,000 at hotels and restaurants, and investing in mutual funds. Similarly, a PAN is necessary for purchasing foreign currency or making travel-related payments exceeding Rs. 50,000 in cash. Furthermore, payments of life insurance premiums over Rs. 50,000 in a financial year and the sale or purchase of immovable property valued at more than Rs. 10 lakh require a PAN. Lastly, any sale or purchase of goods or services exceeding Rs. 2 lakh per transaction must be undertaken with a PAN.

In summary, not having a PAN card can result in higher tax deductions, penalties, and limitations on financial transactions and applications. It is, therefore, advisable for individuals with a source of income to obtain a PAN card to avoid these consequences and ensure compliance with tax regulations in India.

Frequently asked questions