Tracking and managing the income taxes of some 500 million workers plus hundreds of thousands more of entities is never an easy task. Making sure that each taxpayer is paying his due can be quite a monumental undertaking. This is what the Indian government faced before the advent of the Permanent Account Number and the PAN Card. Today, the collection and organization of income tax revenue data from millions of taxpayers is made super-easy with the PAN. Understanding the importance of the PAN requires a look at its historical development.
The Era before PAN
Prior to the introduction of the Permanent Account Number in 1972, Indian taxpayers were issued with General Index Registers or GIRs. These were issued by assessing officers in different wards and jurisdictions. It was never centralized. As such there was always the possibility of having duplicated GIRs across multiple areas or jurisdictions. It was even possible that GIRs of the same number series were issued to multiple individuals within the same assessing area.
One can easily imagine the chaos of monitoring and keeping track of one’s taxpaying activities. It also posed issues in the accuracy and validity of the computation of taxes. Before PAN, there was no way you could possibly know if the taxes being imposed on your income are valid and just because these could very well be the taxes supposedly imposed on others.
1st Generation PAN Card
The problems presented by the General Index Registers necessitated the creation of a unifying system that will remove the determination of the numerical identifier from the hands of local assessing officers to the Board of the Income Tax Department. In the first generation of PAN rolled out in 1972, blocks of PANs were issued to Commissioner Charges all throughout the country. In turn, every single Commissioner Charge subdivided these PAN blocks for issuance to various Assessing Officers within the Charge’s jurisdiction. This effectively eliminated duplication of PANs.
Sadly the system was far from perfect. It had a few loopholes.
- The system did not call for the creation of a database. It was, thus possible that a single taxpayer can have multiple PANs.
- The different pieces of information gathered from taxpayers were pretty basic, at best.
- Local Assessing Officers retained the task of issuing PANs so one can always apply for PAN from different areas.
- The arbitrary jurisdictional status of PAN limited its functionality.
The All-new PAN Card
In 1995, the government amended its 1961 Income Tax Act to address the loopholes exposed by the 1972 Permanent Account Number. The new system effectively puts the issuance of PANs squarely on the shoulders of the Income Tax Department. The 1975 PAN required all taxpayers, whether Indians or foreigners, individuals or entities to secure their PAN. This systematized and organized the linking and processing of all taxpayer financial- and economic- related activities. The monitoring of tax-related activities as well as regional and central revenue collection activities was made more even more efficient and effective. The rest, as everyone knows, is history.