Taxpayers fail to keep pace with PAN card holders

Siddharth Tak/ Zee Research Group

Disconnect between PAN card holders and taxpayers in India is growing bigger by the day. While the number of PAN card holders increased by 175 per cent during 2005-06 to 2010-11, the number of taxpayers in the same period rose by only 17 per cent. Of the total 12.11 crore PAN card holders during 2010-11, the number of tax payers in the country stood only at 3.48 crore. This gap between the two has a significant bearing on government’s efforts to widen tax base, as also the efficacy of the PAN card distribution system in India.

The government by its own admission said it has till date detected and deleted 11,69,238 duplicate PAN cards. The Comptroller and Auditor General (CAG) last year asked the Income Tax department to detect duplicate PAN card holders in the country.

The numbers tell their own story. In 2005-06, out of 4.40 crore PAN card holders 2.98 crore paid tax. During 2006-07, out of 5.19 crore PAN card holders there were 3.13 crore taxpayers. The gap widened when during 2007-08, only 3.36 crore people paid tax as against 6.49 crore PAN card holders.
In 2008-09 number of tax payers slipped to 3.27 crore, while the number of PAN card holders jumped to 8.08 crore. In 2009-10, out of 9.58 crore PAN card holders only 3.41 crore had paid tax.

Tax expert and KNM Advisory Board chairman, KN Memani cautioned, “Having multiple PAN cards is considered an offence under the Income Tax Act and liable for a nominal fine. This is because government collects and tracks a number of financial transactions through Annual Information Returns (AIR) on the basis of PAN. People indulging in tax evasion would try to obtain multiple PAN cards so as to spread their transactions across those multiple PAN cards and thus avoid detection.”


Noting the huge gap between the number of PAN card holders and the number of Tax Returns filed, the CAG had suggested earlier that the Central Board of Direct Taxes (CBDT) should identify the reasons for such a massive difference and utilize the information to enhance income tax base.
However, not many buy the CAG argument. Naresh Makhijani, executive director at KPMG India, said, “It may not be entirely accurate to gauge the number of persons who should have filed their returns based on the number of PAN card holders. A person may have obtained a PAN (as may be required) but may not have taxable income in excess of the prescribed threshold limit and would thus, not be liable to file the return of income.”

According to Rahul Garg, tax expert at PwC, “Our Tax Deduction at Source (TDS) provisions (as amended effective 2010) provide that the rate of deduction of tax would be increased to 20 per cent if the recipient of the amount on which tax is deductible does not have a PAN card. This has resulted in more and more persons obtaining the PAN card even where they are not otherwise liable to pay tax.”

Endorsing KPMG’s Makhijani’s call, Samruddha Paradkar, associate economist at CARE Ratings, said, “Gap is on account of reasons such as individuals holding PAN card but not employed or individuals holding PAN card and retired and so on.”

Memani too admitted that the PAN card had moved from being an identification number for actual taxpayers to being a more ubiquitous identification number serving much usage.

“The drive to address the issue of multiple PANs is good. But just deleting them does not help until at the backend the multiple PANs are linked and transactions involved tagged,” added PwC’s Garg.

The government has now notified that Income Tax department would impose a penalty of Rs 10,000 on an assesse for either wrong quoting or non-quoting of PAN in his or her return statement.