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8 February 2016

CBDT notifies changes in reporting rules for PAN and


Annual Information Reporting
One of the key recommendations made by the Special Investigation Team (SIT) on black money was to
mandatorily quote a Permanent Account Number (PAN) for all sales and purchases of goods and services where
the payment exceeds INR1 lakh. Accepting this recommendation, the Finance Minister made an announcement
to this effect in his Budget speech. The government has received representations from various stakeholders
regarding the burden of compliance this proposal would entail. Considering these representations, it has been
decided that quoting of PAN will be required for transactions of an amount exceeding INR2 lakh regardless of the
mode of payment.
1

Recently, the Central Board of Direct Taxes (CBDT) , has amended the existing Income-tax Rules, 1962 (the
Rules) and forms relating to furnishing of PAN. The new Rules for PAN reporting compliance have come into
effect from 1 January 2016 and the rules relating to Annual Information Reporting (AIR) furnishing requirements
connected with PAN reportable transactions will come into effect from 1 April 2016. The amended rules are
summarised as follows:

Key changes to the list of transactions in relation to which PAN is to be quoted in all
documents (Rule 114B)
Nature of transaction

Value of transaction

The opening of a demat account with a depository, participant,


custodian of securities or any other person registered under the
Securities and Exchange Board of India Act, 1992.
Payment to a hotel or restaurant against a bill or bills at any one
time.

All such transactions

Payment in connection with travel to any foreign country or


payment for the purchase of any foreign currency at any one
time.

Payment in cash of an amount exceeding


INR50,000

Payment to a company or an institution for acquiring debentures


or bonds issued by it.

Amount exceeding INR50,000

Payment to the Reserve Bank of India (RBI) for acquiring bonds

Amount exceeding INR50,000

Payment in cash of an amount exceeding


INR50,000

CBDT Notification No. 95/2015, dated 30 December 2015

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issued by it.
A time deposit with

A banking company or a co-operative bank to which the


Banking Regulation Act, 1949 (Banking Act) applies
(including any bank or banking institution referred to in
Section 51 of the Banking Act);

A post office;

A Nidhi under Section 406 of the Companies Act, 2013; or

Amount exceeding INR50,000 or


aggregating to more than INR5 lakh
during a financial year.

A non-banking financial company which holds a certificate of


registration under Section 45-IA of the RBI Act, 1934, to hold
or accept deposits from the public.
Payment for one or more pre-paid payment instruments, as
defined in the policy guidelines for issuance and operation of prepaid payment instruments issued by the RBI to a banking
company or a co-operative bank (including any bank or banking
institution referred to in Section 51 of the Banking Act) or to any
other company or institution.
Payment as life insurance premium to an insurer.

A contract for sale or purchase of securities (other than shares)


as defined in clause (h) of Section 2 of the Securities Contracts
(Regulation) Act, 1956.
Note: The new Rule has restricted the scope of securities by
excluding shares. As a consequence, PAN reportable
transactions would now only include sale or purchase of other
marketable securities such as bonds, debentures, debenture
stock, derivatives, mutual fund units, etc.
Sale or purchase, by any person, of shares of a company not
listed on a recognised stock exchange.

Payment in cash or by way of a bank draft


or pay order or bankers cheque for an
amount aggregating to more than
INR50,000 in a financial year.

Amount aggregating to more than


INR50,000 in a financial year.
Amount exceeding INR1 lakh per
transaction.

Amount exceeding INR1 lakh per


transaction.

Sale or purchase of any immovable property.

Amount exceeding INR10 lakh or valued


by the Stamp Valuation Authority referred
to in Section 50C of the Act at an amount
exceeding INR10 lakh.

Sale or purchase, by any person, of goods or services of any


nature other than transactions specified under Rule 114B

Amount exceeding INR2 lakh per


transaction.

Where a person entering into any transaction is a minor and does not have any income chargeable to tax,
he/she shall quote the PAN of his/her father, mother or guardian.

The provisions of this rule shall not apply to the following persons:

The central government, the state government and the consular offices

The non-resident in respect of specified transactions.

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Changes to the procedure of verification of PAN in the reportable transactions


Rule 114C provides a list of specified persons in relation to PAN reportable transactions. Such specified persons
have to ensure that PAN has been correctly mentioned in the documents received by them or a declaration in
Form 60 has been duly furnished with complete particulars. The new list of specified persons is in accordance
with the expanded scope of PAN reportable transactions.

Time and manner in which specified persons shall furnish a statement containing particulars
of Form No. 60

Under the erstwhile Rule 114D, every person receiving Form 60 was required to forward a physical copy
thereof to the jurisdictional specified tax authority on a half yearly basis.

New Rule 114D requires half yearly e-filing of particulars thereof along with details of relevant PAN reportable
transactions (in new Form 61).

Such persons should also maintain physical copies of Form 60 received by them for a period of six years.

However, the new requirement of e-filing of new Form 61 does not apply to persons issuing bills in relation to
transactions of hotel payments, foreign travel and sale of any other goods/services provided that such
persons are not under an obligation to get their accounts audited under the Income-tax Act, 1961 (the Act).

Furnishing of statement of financial transaction (Rule 114E)


Reporting of PAN for an individual transaction is accompanied by AIR for persons who are obligated to verify PAN
reporting compliance. AIR involves furnishing of information to specific tax authorities on an annual basis. Apart
from PAN reportable transactions, the scope of AIR also extends to certain additional financial transactions like
cash withdrawals from bank accounts, credit card transactions, etc. The new Rules have modified the scope of
AIR and monetary thresholds for transactions subject to AIR. In addition to the existing scope of AIR, the following
transactions are newly added for furnishing of Annual Information Statement:
Nature and value of transaction

Payment made in cash for the purchase of bank drafts or pay


orders or banker's cheque for an amount aggregating to INR10
lakh or more in a financial year.

Payments made in cash aggregating to INR10 lakhs or more


during the financial year for purchase of pre-paid instruments
issued by the RBI.

Class of person (reporting person)

A banking company or a co-operative


bank.

Cash deposits or cash withdrawals (including through a


bearers cheque) aggregating to INR50 lakh or more in a
financial year, in or from one or more current accounts of a
person.
Cash deposits aggregating to INR10 lakh or more in a financial
year, in one or more accounts (other than a current account and
time deposit) of a person.

One or more time deposits (other than a time deposit made through
the renewal of another time deposit) of a person aggregating to

A banking company or a cooperative bank

Post Master General under Indian


Post Office Act, 1898.

A banking company or a cooperative bank (including any bank

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INR10 lakh or more in a financial year of a person.

Buy back of shares from any person (other than the shares bought
in the open market) for an amount or value aggregating to INR10
lakh or more in a financial year.
Receipt from any person for the sale of foreign currency including
any credit of such currency to a foreign exchange card or expense
in such a currency through a debit or credit card or through the
issue of travellers cheque or draft or any other instrument of an
amount aggregating to INR10 lakh or more during a financial year.
Receipt of cash payment exceeding INR2 lakh for sale, by any
person, of goods or services of any nature (not covered under any
other category of this Rule).

or banking institution under Section


51 of the RBI Act)

Post Master General under Indian


Post Office Act, 1898

Nidhi referred to in Section 406 of


the Companies Act, 2013

Non-banking financial company.


A company listed on a recognised stock
exchange purchasing its own securities
under Section 68 of the Companies Act,
2013.
An authorised person under the Foreign
Exchange Management Act, 1999.

Any person who is liable for audit under


Section 44AB of the Act.

The revised monetary threshold of AIR are as follows:

Transaction

New threshold

Class of person (reporting person)

Payments made by any


person against bills raised
in respect of one or more
credit cards issued to that
person, in a financial year.

Payments of an amount aggregating


to INR1 lakh or more in cash; or

A banking company or a co-operative


bank (including any bank or banking
institution referred to in Section 51 of
Banking Act) or any other company or
institution issuing a credit card.

Receipt from any person


for acquiring bonds or
debentures issued by the
company or institution.
Receipt from any person
for acquiring shares
(including share application
money) issued by the
company.
Receipt from any person
for acquiring units of one or
more schemes of a mutual
fund.
Purchase or sale of
immovable property.

INR10 lakh or more by any other


mode.
Amount aggregating to INR10 lakh
or more in a financial year.

A company or institution issuing bonds


or debentures.

Amount aggregating to INR10 lakh


or more in a financial year.

A company issuing shares.

Amount aggregating to INR10 lakh


or more in a financial year.

A trustee of a mutual fund or such other


person managing the affairs of the
mutual fund.

The amount of INR30 lakh or more


or valued by the Stamp Valuation
Authority referred to in Section 50C
of the Act.

Inspector-General appointed under


Section 3 of the Registration Act, 1908
or Registrar or Sub-Registrar appointed
under Section 6 of that Act.

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The new Rule provides clarifications on aggregation for computing the monetary thresholds for AIR (e.g. in
the case of joint holding in any account or transaction, the same information shall be furnished for all joint
holders).

Furnishing of AIR continues to be in an electronic mode subject to variation that in the case of persons other
than Post Master General and Registrar/Inspector General, the data needs to be transmitted online to the
specific tax authoritys server instead of physical furnishing of a floppy/CD/DVD.

The time limit for furnishing AIR has been preponed to 31 May (instead of 31 August) immediately following
the relevant financial year.

Our comments
The amended rules on PAN reportable transactions and AIR represent important measures adopted by the
government to collect the information of specified types of transactions from third parties in a non-intrusive
manner and to tackle the menace of black money transactions. However, the new rules do not provide clarity on
some of the following aspects:

The revised list of PAN reportable transactions includes transactions of sale or purchase, by any person, of
goods or services of any nature above INR2 lakh. It is not clear whether each and every type of sale and
purchase transaction would get covered here. Further it is also not clear the coverage of documents on which
PAN needs to be quoted.

There is no clarity with respect to the threshold of INR2 lakh for AIR compliance of cash sales. If the seller is
expected to track individual buyer-wise cash sales exceeding INR2 lakh during a financial year, it may cast a
significant burden on the sellers of goods and services in the retail sector. These aspects need to be
addressed soon.

The amended rules relating to PAN reportable transactions have come into effect from 1 January 2016.
Therefore, the taxpayers need to immediately take appropriate steps to avoid any penal consequences on
account of non-compliance with the new rules.

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