Is PAN Mandatory for Foreign Owned Indian Companies?

Introduction

Foreign businesses entering India often face one common question: is PAN mandatory for foreign-owned Indian companies? Understanding this is important for legal compliance and smooth financial operations.

What is PAN and Why is it Important in India?

PAN (Permanent Account Number) is a 10-digit alphanumeric code issued by the Income Tax Department of India. It is used to track financial and tax-related activities.

For foreign-owned Indian companies, PAN is needed for:

• Opening business bank accounts
• Filing Income Tax Returns (ITR)
• GST registration and TDS compliance
• Conducting high-value transactions

As per the Income Tax Act, PAN is mandatory for anyone with a taxable presence in India.

Is PAN Mandatory for Foreign-Owned Indian Companies?

Yes, PAN is mandatory for foreign-owned Indian companies if they:

• Earn income or profits in India
• Are required to file an ITR
• Deduct or collect tax at source (TDS/TCS)
• Open a bank account in India
• Apply for GST registration

Real-life examples:

• A Singapore-based company opening a subsidiary in Mumbai will require a PAN to file returns and open a bank account.
• A UK-based liaison office that conducts market research and receives funds locally will also need a PAN.

For legal backing, refer to Rule 114 of the Income Tax Rules, 1962.

Who Should Apply for a PAN?

PAN is applicable for the following foreign-owned entities:

• Foreign-owned Private Limited Companies
• Wholly-Owned Subsidiaries of foreign firms
• Branch Offices registered with the RBI
• Liaison Offices, especially when dealing with financial transactions
• Foreign LLPs registered under the LLP Act in India
• Foreign shareholders, when shareholding crosses the prescribed threshold or income is earned in India

What is the Process to Apply for PAN in India?

Here is a simplified step-by-step process:

• Step 1: Fill Form 49AA: Use Form 49AA for non-Indian entities.
• Step 2: Prepare Required Documents
  • Notarized & Apostilled Certificate of Incorporation
  • Address & identity proof of entity
  • Power of Attorney (if using a representative)
• Step 3: Submit the Application: Submit through NSDL or UTIITSL
• Step 4: Pay PAN Application Fee: INR 1,017 (as per NSDL guidelines for foreign communication addresses)
• Step 5: Verification and Issuance: PAN is usually issued within 15–20 business days after verification.

Why Should Foreign-Owned Companies Obtain a PAN?

Benefits of PAN for Foreign Companies:

• Compliance with the Income Tax Act: Required for filing ITR and paying taxes in India
• GST Registration Support: PAN is a prerequisite to apply for GSTIN
• Enables TDS Operations: Required to deduct or collect tax at source
• Smooth Banking Operations: Necessary for opening current accounts with Indian banks
• Recognition by Government Departments: PAN ensures seamless verification for filings and licenses

What are the Consequences of Not Having a PAN?

• Inability to File Returns: You cannot file ITR or claim tax refunds
• TDS Deducted at 20% Rate: As per Section 206AA of the Income Tax Act
• Delay in GST Registration: PAN is a basic requirement for obtaining GSTIN
• Clients May Delay Payments: Many Indian clients avoid payments to unverified companies
• Bank Account Restrictions: Indian banks require PAN for KYC and account opening

What are the Challenges Faced by Foreign Companies?

• Apostille and Documentation: Foreign documents must be apostilled or consularized
• Lack of Awareness of Local Tax Laws: India’s tax rules can be complex for non-residents
• Higher Penalties for Errors: Non-compliance can attract penalties under Section 271FA and others
• Language and Portal Issues: Indian government portals may pose navigation and interpretation challenges

PAN for Different Foreign Entities in India

Conclusion

To conclude, PAN is mandatory for foreign-owned Indian companies that engage in financial activities, generate income, or require statutory registrations like GST or bank accounts in India. Failing to obtain a PAN can lead to delays, penalties, and tax complications. For smooth business operations and tax compliance, foreign companies are advised to secure a PAN at the earliest.

Refer to www.incometax.gov.in, www.mca.gov.in, and www.gst.gov.in for official guidelines.

Suggested Read :

RBI Rules for Foreign Subsidiary Companies

Branch Office and Indian Subsidiary

Holding and Subsidiary Company in India

How to start a Subsidiary Company in India?

Foreign Subsidiary Company Compliance in India

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