What is PAN Card Used for? Importance, Benefits & Legal Uses

In India, the Permanent Account Number (PAN) is the most crucial document. Although it is considered to be just an ID card by many, its applications are much more than that. PAN is the key to your financial life, which keeps a record of all major monetary transactions.

Whether you are a student opening a new bank account, a salaried individual filing taxes, or a businessman applying for a loan, understanding what is PAN card used for is the beginning of financial compliance. The Income Tax Department employs this 10-digit alphanumeric code to discourage tax evasion and encourage a transparent economy. For the common man, PAN is the link between earning and effectively using money.

This article will discuss the uses of PAN, distinguishing between what is required by law and what is generally beneficial, in order to highlight the importance of this document in today’s India.

Mandatory Financial Uses of PAN Card

The primary objective of the PAN system is to track financial transactions to assess tax liability. Consequently, the government has mandated the quoting of PAN for several high-value transactions. When asking what is PAN card used for, the following financial activities top the list.

1. Filing Income Tax Returns (ITR)

A PAN is a necessary document for filing ITR. It helps to associate your tax payments, TDS, and income with your profile, and you can get a refund if you have overpaid.

2. Opening Bank Accounts

PAN is mandatory in RBI KYC for most savings/current accounts. Small accounts may have some relaxation in this. Deposits above ₹50,000 in a day require a PAN for reporting.

3. Buying/Selling Immovable Property

For property worth ₹10 lakhs or above (buy, sell, or rent), PAN is mandatory. The PAN details are required by the registrar for stamp duty. 

4. Buying Motor Vehicles 

Quoting PAN is mandatory for purchasing/selling four-wheelers.  

5. Investments in Securities 

PAN is the entry point to the stock market. PAN is mandatory for demat/trading accounts, mutual funds, debentures, and bonds. Unlisted shares also require a PAN.

Why PAN is Crucial for Loans and Credit

One of the most practical aspects of what is PAN card used for relates to your borrowing capacity. In the eyes of lenders, your PAN is your financial character certificate.

1. Building a Credit Score (CIBIL)

Your credit score (CIBIL score) is mapped directly to your PAN. Credit bureaus like CIBIL, Experian, and Equifax track your repayment history based on loans and credit cards linked to your PAN.

• Impact: Without a PAN, there is no credit history. Without a credit history, obtaining a loan is difficult.

2. Loan Application and Approval

Whether you are applying for a Personal Loan, Home Loan, or Education Loan, the lender’s first request will be for your PAN card. They use it to fetch your credit report.

• Verification: It verifies your identity and financial discipline. A PAN with a clean history leads to faster approvals and lower interest rates.

3. Credit Cards

You cannot apply for a credit card without a PAN. Since a credit card is essentially an unsecured loan instrument, card issuers strictly mandate PAN submission to assess risk.

Importance of PAN Card in Taxation and TDS

Understanding the importance of PAN card is incomplete without discussing Tax Deducted at Source (TDS). This is where the PAN card saves you money.

1. Preventing Higher TDS Deductions

Entities like banks (on interest income) or employers (on salary) deduct tax at the source. If you furnish your PAN, TDS is deducted at the standard rates (usually 10%).

• The Penalty: If you do not provide your PAN, the deductor is legally required to cut TDS at a flat rate of 20% or higher, as per Section 206AA of the Income Tax Act.

2. Claiming Tax Refunds

To claim a refund on the excess TDS deducted, you must file an ITR. As established, ITR filing is impossible without a PAN. Therefore, what is PAN card used for? It is used to ensure you get your hard-earned money back from the government.

Business and Commercial Uses

For entrepreneurs and business entities, the PAN card is not just an ID; it is a license to operate.

1. GST Registration

The Goods and Services Tax (GST) registration is PAN-based. The 15-digit GSTIN includes the entity's PAN. Without a PAN, a business cannot register for GST, which restricts its ability to trade across states or sell on e-commerce platforms.

2. Corporate Transactions

For comPANies and firms, PAN is required for:

• Opening a current account.
• Raising capital or business loans.
• Paying invoices to vendors where TDS is applicable.

Other Significant Uses of PAN

Beyond the heavy financial lifting, there are everyday scenarios where the utility of a PAN card surfaces.

1. Foreign Travel and Forex

Under the Liberalised Remittance Scheme (LRS), any individual sending money abroad or purchasing foreign currency for travel must provide their PAN.

• Threshold: If cash payment for foreign travel exceeds ₹50,000, PAN is mandatory.

2. Identity Proof

While discussing PAN card uses, one cannot ignore its validity as a government-issued photo identity. It is accepted for:

• Getting a new mobile connection (SIM card).
• Gas connections (LPG subsidy).
• Proof of age for various government schemes.

3. Buying Jewellery

To curb money laundering, the government has mandated PAN for the purchase of jewellery or bullion exceeding ₹2 lakhs in a single transaction.

Summary of Mandatory Uses vs. Benefits

To clarify what is PAN used for at a glance, refer to the table below:

Consequences of Not Having a PAN Card

If you are still evaluating what is PAN card used for and whether you can manage without it, consider the downsides:

1. Financial Exclusion: You cannot invest in shares or mutual funds.
2. Credit Block: You will likely be rejected for formal loans and credit cards.
3. Tax Loss: You will lose a significant portion of your earnings to higher TDS (20%) and cannot claim refunds.
4. Transaction Limits: You will face hurdles in buying property or vehicles.

Conclusion

The PAN card has evolved from a mere tax-tracking number to the backbone of an individual’s financial identity in India. The answer to what is PAN card used for covers all these aspects because you want to invest in your family's future, buy your dream home, and save money on taxes. Your economic existence gets validated through this document, which protects you from legal consequences.

People who already have a PAN should use it to achieve their financial objectives. For individuals looking to explore credit options based on their financial profile, My Mudra is here to simplify the process. Check your eligibility, explore different borrowing and investment options, and make informed decisions to achieve your financial goals.

Also Read:
- PAN Card 10-Digit Meaning Explained (4th Letter, Format & Examples)
- Check Your Free CIBIL Score By PAN Card