PAN Under the Income Tax Act 2025: When It Is Mandatory and What Happens Without One

Under section 262 of the Income-tax Act, 2025, a person who has no Permanent Account Number (PAN) must apply for one if any of six conditions applies: taxable income above the basic exemption limit, business turnover likely to cross Rs 5,00,000, a duty to file a return, a resident non-individual transacting Rs 2,50,000 or more in a tax year, a director or office bearer of such an entity, or a transaction the Board prescribes. Without a valid PAN, tax is deducted at a higher rate (20% in most cases), and a PAN not linked to Aadhaar becomes inoperative.

This guide covers who must apply, by when, where PAN has to be quoted, what changes when a PAN is missing or inoperative, and a few cases where PAN is not needed. The figures come from the Act (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026, with section and rule numbers beside them. It is general information, not tax advice.

Who must apply for a PAN under section 262?

Section 262(1) says every person who has not been allotted a PAN must apply to the Assessing Officer if any one of these conditions is met:

• Clause (a): total income (or the total income of another person for which he is assessable) in a tax year exceeded the maximum amount not chargeable to income-tax.
• Clause (b): he carries on a business or profession whose total sales, turnover or gross receipts are, or are likely to be, more than Rs 5,00,000 in a tax year.
• Clause (c): he must file a return of income under section 263.
• Clause (d): he is a resident, other than an individual, and enters into financial transactions totalling Rs 2,50,000 or more in a tax year.
• Clause (e): he is the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer of such an entity, or anyone competent to act for it.
• Clause (f): he intends to enter into a transaction the Board prescribes in the interest of revenue.

Section 262(2) lets anyone else apply voluntarily. Section 262(8) allows only one PAN per person: a person who already holds a PAN cannot apply for, obtain or possess another.

By when must a PAN be applied for?

Rule 158(7) of the Income-tax Rules, 2026 sets the time limit by the type of person:

Who (rule 158(7))	Apply by
Total income above the exemption limit (Sl. No. 1)	31 May of the tax year following the year of that income
Business or profession with receipts likely to exceed Rs 5,00,000 (Sl. No. 2)	Before the end of that tax year
Person required to file a return (Sl. No. 3)	Before the end of the tax year
Person entitled to receive a sum on which tax is deductible or collectible (Sl. No. 4)	Before the end of that tax year
Resident non-individual with transactions of Rs 2,50,000 or more (Sl. No. 5)	31 May immediately following that tax year
Director, partner, trustee, office bearer and similar persons of such an entity (Sl. No. 6)	31 May immediately following the tax year of the transaction
Person intending a prescribed transaction under 262(1)(f) and 262(9)(a) (Sl. No. 7)	At least seven days before the transaction

Applications go in Form 93, 94, 95 or 96, depending on the applicant (rule 158(1), (8)). Form 93 is for an individual who is a citizen of India; for an HUF and a company registered in India the table in rule 158(8)(b) points to Form 94. A person with an Aadhaar number can also apply by intimating it (rule 158(3), section 262(7)(a)).

Is Aadhaar needed for a PAN?

Yes, if you are eligible to have an Aadhaar number. Section 262(5) requires such a person to quote Aadhaar in the PAN application and in the return of income. Section 262(6)(a) requires every existing PAN holder who is eligible for Aadhaar to intimate it to the prescribed authority.

Aadhaar can also stand in for PAN. Under section 262(7), a person who needs to quote PAN but has none can quote Aadhaar instead, and will be allotted a PAN in the prescribed manner. A PAN holder who has intimated Aadhaar can quote Aadhaar in place of PAN. Section 262(12) lets the Central Government exempt notified persons, classes or States from sub-sections (5) and (6).

What happens if a PAN is not linked to Aadhaar?

Under section 262(6)(b), the PAN is made inoperative. Rule 162 spells out the consequences, which run from the date the rule commenced until the PAN becomes operative again:

• no refund of tax (rule 162(3)(a));
• no interest on that refund for the period (rule 162(3)(b));
• TDS or TCS at the higher rate of section 397(2) (rule 162(3)(c)).

To fix it, the person intimates the Aadhaar number and pays the fee under rule 158. The PAN becomes operative within thirty days of the intimation (rule 162(2)). Rule 158(10) sets that fee at Rs 1,000 for a person who failed to intimate Aadhaar by 30 June 2023.

What is the TDS rate if the deductee has no PAN?

Section 397(2)(a) obliges every person who is to receive an amount on which tax is deductible, or who pays an amount on which tax is collectible, to give a valid PAN to the deductor or collector. If not, section 397(2)(b) applies:

	Rate when PAN is not furnished
TDS (397(2)(b)(i))	Highest of (A) the rate in the relevant provision, (B) the rate or rates in force, and (C) 20%; the third limb is 5% where the deduction is under 393(1), Table Sl. No. 8(ii) or 8(v)
TCS (397(2)(b)(ii))	Higher of twice the specified rate or 5%, capped at 20%
Rent under Sl. No. 2(i) (397(2)(e))	Higher-rate deduction cannot exceed the rent payable for the last month of the tax year or of the tenancy
Declarations (397(2)(f), (g))	A declaration under 393(6) or 394(2) without PAN is invalid, so tax is deducted or collected at the higher rate; an application under 395(1) or (3) without PAN gets no certificate

Worked example 1: rent to a landlord with no PAN

Assumptions: tax year 2026-27. Ravi is a salaried individual who is not a "specified person" and pays his landlord Rs 60,000 a month for twelve months. The landlord has not given a PAN. See our TDS on rent guide for how the Sl. No. 2(i) deduction normally works.

Step	Working	Result
1. Rent for the year	Rs 60,000 x 12	Rs 7,20,000
2. Higher rate for no PAN	20% of Rs 7,20,000 (rate in 397(2)(b)(i)(C))	Rs 1,44,000
3. Cap in 397(2)(e)	Rent for the last month of the tax year or tenancy	Rs 60,000
4. Tax deducted	Lower of step 2 and step 3	Rs 60,000

The cap keeps the deduction from exceeding one month's rent, which is the whole point of clause (e).

Worked example 2: collection of tax without PAN

Assumptions: a collector must collect tax at a specified rate of 1% (an illustrative rate, not a statement of any particular entry) on a sale of Rs 10,00,000. The buyer has not furnished a PAN.

Step	Working	Result
1. Normal collection	1% of Rs 10,00,000	Rs 10,000
2. Twice the rate	2% of Rs 10,00,000	Rs 20,000
3. Alternative rate	5% of Rs 10,00,000	Rs 50,000
4. Higher of steps 2 and 3, capped at 20%	5% is higher than 2%, and 5% is below the 20% cap	Rs 50,000

Where must PAN be quoted?

Section 262(3) requires every person to quote PAN in all returns to, or correspondence with, any income-tax authority and in all challans for payment under the Act. Under section 262(4), a PAN holder must also tell the Assessing Officer about a change in address, or in the name and nature of the business on which the PAN was allotted.

Under section 262(9), a person entering into a prescribed transaction must quote PAN or Aadhaar in the document and authenticate it, and the person receiving that document must check that it is quoted and authenticated. Two rules list the transactions.

Rule 159(1) covers, among others (value limits are as in the rule):

• an application for a credit card (all such transactions);
• opening an account with a depository participant or custodian of securities (all);
• payment to the Reserve Bank of India for its bonds, or to a mutual fund for its units, exceeding Rs 50,000;
• sale or purchase of securities other than shares exceeding Rs 1,00,000 per transaction, and of shares of an unlisted company exceeding Rs 1,00,000 per transaction;
• cash deposits or cash withdrawals with a bank or post office aggregating Rs 10 lakh or more in a financial year;
• sale or purchase of a motor vehicle or motor cycle requiring registration (other than a tractor) exceeding Rs 5,00,000;
• payment to a company or institution for its debentures or bonds exceeding Rs 50,000;
• purchase, sale, gift or joint development agreement of immovable property exceeding Rs 20 lakh, or valued above that by the stamp valuation authority;
• opening a bank account (other than a time deposit and a Basic Savings Bank Deposit Account), in all cases;
• a time deposit exceeding Rs 50,000, or aggregating more than Rs 5,00,000 in a financial year (bank, post office, Nidhi or deposit-taking NBFC);
• starting an account-based relationship with an insurer where the premium exceeds Rs 50,000 in a financial year;
• cash payment exceeding Rs 1,00,000 against a bill or bills at one time to a hotel, restaurant, convention centre, banquet hall or event manager;
• sale or purchase of any other goods or services exceeding Rs 2,00,000 per transaction.

What if the person has no PAN, or is a minor?

Under rule 159(2), a minor with no taxable income quotes the PAN of a parent or guardian. A person who is not a company or firm and has no PAN, entering into the transactions at Sl. Nos. 11 to 16 of the table (property, bank account, time deposit, insurance, hotel or event payments, goods and services), makes a declaration in Form 97 giving the transaction details (rule 159(2)(b)). A person without PAN entering Sl. Nos. 1 to 10 transactions, or buying or selling immovable property above Rs 45 lakh, must apply for a PAN (rule 159(3)). The receiver of the document must check that PAN or Form 97 is recorded (rule 159(5)). Certain recipients must report Form 97 declarations in Form 98 and keep Form 97 for six years (rule 160).

Rule 161(1), made for section 262(9)(a), covers cash deposits or cash withdrawals aggregating Rs 20 lakh or more in a financial year with a bank or post office, and opening a current account or cash credit account. The rule does not apply to the Central or a State Government or a consular office (rule 161(2)).

Real-life example 1: buying a scooter

Meena buys a new motor cycle for Rs 1,20,000 from a dealer. The price is below the Rs 5,00,000 limit in rule 159(1), so PAN is not required for that purchase. Her brother Dev buys a car for Rs 7,50,000 and must quote his PAN in the document, because the amount exceeds Rs 5,00,000. The dealer who receives it must make sure the PAN is quoted and authenticated (section 262(9)(b)).

Real-life example 2: a long-held PAN that stopped working

Sunita has held a PAN for years but never intimated her Aadhaar number. Her PAN is treated as inoperative (section 262(6)(b)). When she expects a tax refund, it is not paid, and no interest runs on it for that period (rule 162(3)(a), (b)). A bank deducting tax on her interest would deduct at the higher rate. Once she intimates Aadhaar and pays the fee under rule 158, the PAN becomes operative within thirty days (rule 162(2)).

Who does not need a PAN?

The Act and the Rules carve out a few cases:

• Specified-fund investors (rule 157): a non-resident (not a company or foreign company) whose only Indian income is from investment in a specified fund, with tax deducted by the fund at the section 393 rates and details furnished to the fund, need not obtain a PAN.
• Higher-rate deduction on certain non-resident payments (rule 217): a non-resident, not a company, or a foreign company without a PAN is not subjected to the section 397(2)(b)(i) higher rate on interest, royalty, fees for technical services, dividend and transfer of a capital asset if it furnishes its name, e-mail id and contact number, address abroad, a residence certificate where its country issues one, and its tax identification number (or a unique equivalent). The same applies where the person is not required to apply for PAN under section 262.
• Notified classes (section 262(10)(f), 262(12)): the Board can exempt classes of persons by rule, and the Central Government can exempt from the Aadhaar requirements.

Common mistakes

• Assuming "no tax payable" means "no PAN needed." Clause (c) turns on the duty to file a return, and clauses (b) and (d) turn on turnover and transaction value, not on tax.
• Applying for a second PAN after losing the first. Section 262(8) bars possessing more than one.
• Ignoring the Aadhaar link until a refund is stuck or TDS is cut at the higher rate.
• Forgetting to report a change. Section 262(4) requires intimation of a change of address, or of the name or nature of the business.
• Treating the entity and its directors separately. A resident company crossing Rs 2,50,000 in transactions brings its directors and office bearers under clause (e) as well.
• Not collecting PAN from payees. A deductor who does not obtain a valid PAN must deduct at the higher rate under section 397(2)(b)(i).

Quick reference

Item	Rule
Business or profession turnover trigger	Rs 5,00,000 likely in a tax year (262(1)(b))
Resident non-individual transaction trigger	Rs 2,50,000 or more (262(1)(d))
Fee for late Aadhaar intimation (failed by 30 June 2023)	Rs 1,000 (rule 158(10))
Time for PAN to become operative after intimation and fee	30 days (rule 162(2))
TDS when PAN is not furnished	Highest of the normal rate, the rate in force and 20% (5% for Sl. No. 8(ii) or 8(v)) (397(2)(b)(i))
TCS when PAN is not furnished	Twice the rate or 5%, capped at 20% (397(2)(b)(ii))

Where this is in the Act

• Section 262(1) to (13): allotment, Aadhaar, one-PAN rule, quoting PAN, exemptions
• Section 263: return of income (cross-referred by 262(1)(c))
• Section 397(2): higher TDS or TCS rate, invalid declarations and certificates when PAN is missing
• Rule 157: persons exempt from obtaining PAN
• Rule 158: application forms, documents, time limits, Aadhaar fee
• Rule 159 and rule 161: transactions where PAN must be quoted
• Rule 162: inoperative PAN and its consequences
• Rule 217: non-residents without PAN and the higher rate

For a CA firm, the difficulty is tracking it across many clients: which PANs are not yet linked to Aadhaar, which new entities have crossed a threshold, and which payees have not supplied a PAN. Finexo's practice management software keeps client details and reminders in one place, so these follow-ups do not depend on memory. It does not apply for PANs or file forms on your behalf.