How Budget 2018 has quietly made a major step in increasing the tax base

In the past few years, one has seen that the Modi Government has focused on expanding the tax net. GST and Demonetisation were two major steps which have already reaped results. With Budget 2018 the Government has brought in one more rule which will take this agenda further.

Currently, as per the Income Tax Act, an entity needs to obtain a PAN only if the taxable income crosses the minimum tax threshold limit, or if its sales are expected to cross Rs 5 lacs. There are some other clauses which make certain specific bodies liable to obtain a PAN. The clauses of applicability are linked to incomes.

Now the budget has proposed to bring in another clause which links the requirement of having a PAN, with transactions other than income. It is proposed to amend Section 139A of the Income Tax Act and mandate that every entity not being an individual, will have to apply for a PAN if it enters into a financial transaction of an amount aggregating to Rs 2.5 lakh in a financial year.

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In simple terms, you have to obtain a PAN if you do any sort of transaction, and the total of such transactions in any financial year crosses Rs 2.5 lacs. The departure from using the word “income” and using the word “transaction” indicates how the scope has now been widened.

Thus under this clause, even loans and other non income transactions get triggered, and that entity has to obtain a PAN. Once a PAN is obtained, automatically, the tax net is widened. The budget document states that this has been done in order to use PAN as Unique Entity Number (UEN) for non-individual entities.

The clause further provides that not only such entity, but its promoters will also have to obtain a PAN. Thus managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities will also have to apply for a PAN.

This move will certainly help bring more entities under the cover of Income Tax Act. Once this comes into force from April 2018, one can hope that the meager tax base of merely 2% odd of India’s population, will be given a boost with the new registrations via this clause.

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