TAN, PAN and Director KYC
There are various documentation requirements and compliances for almost every kind of corporate and financial transaction in India from incorporating a company here to annual tax filings with the Income Tax Department and other Ministry of Corporate Affairs.
Most of these regulatory compliances require Permanent Account Number (PAN), Tax Collection Account Number (TAN) and Director KYC (DIR 3 KYC). Below, I have tried to explain what each three means to you and have highlighted their significance in your professional life.
Tax Collection Account Number (TAN)
Tax Deduction Account Number, also known as Tax Collection Account Number (TAN) is issued by the Income Tax Department (IT department). TAN is required by individuals who are responsible for collecting Tax Deductible at Source (TDS) or Tax Collected at Source (TCS). The rules regarding TAN are envisaged under Section 203A of the Income Tax Act, 1961 (IT Act). If one is defraying salary/commission, that entity must have a TAN which may include sole proprietors, Joint Hindu Families (JHFs), corporations, individuals, trusts, etc.
Documents Required for TAN
Minimal documentation such as PAN (for sole proprietors basically) or Certificate of Incorporation (in case of corporates) is required for obtaining TAN per se but if the application has been made via online medium, the acknowledgement generated after filling up the form needs to be sent to National Securities Depository Limited (NSDL).
Permanent Account Number (PAN)
Please note that even minors (person below the age of 18 years) and non-citizens also require PAN. As per Section 139A of the IT Act, the below-mentioned entities need a PAN:
- Individuals liable to pay taxes in India;
- Individuals conducting business or professional practice which generates turnover above INR 5 lakh annually, in any year of assessment;
- Importers/exporters subject to any tax or duty charges under the IT Act or any prevalent law;
- All forms of trusts, charitable organisations, and associations;
- Entities like minors, sole proprietors, JHFs, partnerships, corporations, etc.
If you don’t have a PAN then you will be subject to a flat 30 per cent tax rate on your income, as stipulated by the IT department which is applicable on all the entities eligible for taxes. Further, you can’t purchase or sale a vehicle, real estate costing above INR 10 lakh or open a bank account.
Benefits of Having PAN
- Also serves as identity proof;
- The best method to track your taxes. You might be required to pay taxes multiples times because due to lack of PAN your tax payment can’t be verified;
- Important for ensuring compliance against tax evasion and avoiding;
- It can be utilised to avail of electricity, telephone, LPG, and internet connections.
Consequences of Not Having PAN
Other than those already mentioned above, not having a PAN card can result in the following limitations:
- A penalty of INR 10,000 for not quoting PAN under Section 272B of IT Act.
- One can’t make purchase units of mutual funds above INR 50,000;
- The life insurance premium of an aggregate amount above INR 50,000 in an accounting year cannot be paid without PAN.
- Payment to a foreign country or for the purchase of foreign currency in one-time, cash of the amount above INR 50,000 can’t be done without PAN.
DIR 3 KYC, popularly known as Director’s KYC, refers to Know Your Customer (KYC), using which the government reconfirms your identity and what you update your KYC. All the Directors of all kinds of companies and all partners and designated partners of all the LLPs need to file for DIR 3 KYC.
As per the latest amendments by Ministry of Corporate Affairs (MCA) inter alia insertion of Rule 12A under the Companies (Appointment and Qualification of Directors) Rules 2014, makes it mandatory for the mentioned people to update the KYC in e-Form DIR 3 KYC. Failing to do the same will attract a penalty of INR 5,000 and disqualification of the concerned Director’s/Partner’s DIN (Director Identification Code). This DIN will be reactivated on the payment of the requisite fee of INR 5,000.
When to File Director KYC
Director KYC needs to be filed annually and the last date for it is 30th April. All the Directors have to provide their personal contact numbers and email IDs in the form which is verified via OTP (One Time Password). Further, Directors have to use their own Digital signatures for the filing process and this eForm has to be certified by a practising Chartered Accountant (CA), Company Secretary (CS) or Cost and Management Accountant (CMA).
Documents Required for Director KYC
- Digital Signature Certificate (DSC) of the Director or Designated Partner
- Permanent Account Number (PAN);
- Voters Identity card or Passport (mandatory for foreign national) or Driving License;
- Aadhaar card;
- Personal Mobile;
- Personal Email Address;
- Current Address Proof (latest bank statement or post-paid mobile bill or electricity bill).
PS: The documents have to be attested by a practising CA, CS or CMA.
We are a confluence of CA, CSes and CMAs having 10+ years of experience in the arena of managing finance and taxations of individuals. We have worked with some remarkable HNWIs/UHNWIs including actors and top-notch corporate executives from Blackstone Group and like. We have a dedicated team for individual taxation issues, comprising experts for every kind of tax problem which can arise on various stages of filings and compliances.
We have been dealing with complex taxation issues of individuals as well as of corporations regarding cross-border transactions, international taxation and tax planning and documentation and our international clientele of 3,500+ HNWI, companies, investors, startups, etc is a proof of our competence and capability.
We help you with your TAN, PAN and Director KYC, along with providing a range of other services to take full accountability as your virtual CFO.
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