Why do NRIs need PAN??

An NRI needs to obtain a PAN (Permanent Account Number) under certain following situations : 

 

Firstly, when an NRI is liable to file income-tax returns in India in case his taxable income in India is above the threshold limit, which is not chargeable to tax, or for claiming a refund of taxes paid or withheld, or for claiming a carry forward of loss, he needs a PAN which is mandatorily required to be quoted at the time of filing income-tax returns.

 

The threshold limit (minimum amount not chargeable to tax) which is not chargeable to tax is Rs.2 lacs for the FY 2013-14. (April 2013 to March 14)

 

Secondly, it is also mandatory to have a PAN for the purpose of entering into certain specified financial transactions such as transactions of an amount of Rs.50,000 or more for : 

Purchase of units of mutual funds,

Acquiring/Investing in shares, debentures or bonds of a company, 

Payment of life insurance premium, 

Opening a demat account, opening a bank account and having a broking account etc.

 

 Whenever an NRI has any income on which tax is required to be deducted at source, it is mandatory to furnish the PAN to the deductor, failing which the deductor will deduct tax at source at the higher of the rate prescribed under the Double Tax Avoidance Agreement, or the Income-tax Act or at 20%. 

 

Hence, if the prescribed rate either as per the Indian Income-tax Act or as per the Double Tax Avoidance Agreement is say 10%, in the absence of PAN, the tax will be deducted at 20%.

 

It is also compulsory to quote PAN in all documents pertaining to the following financial transactions :-
(a) sale or purchase of any immovable property valued at five lakh rupees or more;
(b) sale or purchase of a motor vehicle or vehicle, [the sale or purchase of a motor vehicle or vehicle does not include two wheeled vehicles, inclusive of any detachable side-car having an extra wheel, attached to the motor vehicle;]
(c) a time deposit, exceeding fifty thousand rupees, with a banking company ;
(d) a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank;
(e) a contract of a value exceeding one lakh rupees for sale or purchase of securities;
(f) opening a bank account;
(g) making an application for installation of a telephone connection (including a cellular telephone connection);
(h) payment to hotels and restaurants against their bills for an amount exceeding twenty-five thousand rupees at any one time ;
(i) payment in cash for purchase of bank drafts or pay orders or banker’s cheques for an amount aggregating fifty thousand rupees or more during any one day;
(j) deposit in cash aggregating fifty thousand rupees or more with a bank during any one day;
(k) payment in cash in connection with travel to any foreign country of an amount exceeding twenty-five thousand rupees at any one time.