Introduction
Non-Resident Indians (NRIs) often face confusion when dealing with financial or legal transactions in India, especially concerning the Permanent Account Number (PAN). While quoting PAN is mandatory for most residents in high-value transactions, NRIs enjoy certain exemptions. Understanding when and where you are not required to quote PAN can help you avoid unnecessary compliance burdens and penalties.
This blog provides a comprehensive guide to PAN exemptions for NRIs, backed by Rule 114B of the Income Tax Rules, and clarifies the exceptions where quoting a PAN is still compulsory.
Why PAN is Important
PAN is a unique 10-digit alphanumeric identifier issued by the Income Tax Department of India. It is used to:
- Track financial transactions
- Prevent tax evasion
- Ensure transparency in high-value transactions
However, for NRIs, certain relaxations have been granted to ease their financial interactions with Indian institutions, especially if they don’t earn taxable income in India.
Legal Basis for Exemption: Rule 114B of Income Tax Rules
As per Rule 114B of the Income Tax Rules, quoting PAN is required for a list of specific transactions. However, the Fourth Proviso of Rule 114B clearly states:
“The provisions of this rule shall not apply to non-residents referred to in clause (30) of section 2of the Act, in respect of the transactions other than those listed under specific serial numbers.“
This means NRIs do not need to quote PAN for general transactions unless they fall under certain exceptions.
Exemptions: Where NRIs Need NOT Quote PAN
Here’s a breakdown of transactions where NRIs are exempt from quoting PAN:
- Buying or selling goods or services exceeding ₹2 lakh — Exempt
- Payments to restaurants or hotels in cash exceeding ₹50,000 — Exempt
- Payments for foreign travel or foreign currency — Exempt
- Buying prepaid payment instruments exceeding ₹50,000 per year — Exempt
- Deposits below ₹50,000 in a day or under ₹2.5 lakh between 9 Nov–30 Dec 2016 — Exempt
- Life insurance premiums under ₹50,000 per year — Exempt
- Time deposits under ₹50,000 or aggregate under ₹5 lakh in a year — Exempt
These exemptions aim to ease the burden for NRIs who don’t frequently engage in high-value or taxable Indian transactions.
Exceptions: When NRIs Must Quote PAN
There are 11 specific transactions where NRIs must still quote their PAN, even if they don’t have taxable income in India:
- Sale or purchase of motor vehicles (excluding two-wheelers)
- Opening a bank account (other than basic savings)
- Opening a demat account
- Mutual Fund purchases over ₹50,000
- Debenture/bond purchases over ₹50,000
- Cash deposits in banks or Post Offices over ₹50,000 in a day
- Time deposits over ₹50,000 or aggregating to ₹5 lakh in a year
- Life insurance premiums exceeding ₹50,000/year
- Securities transactions (other than shares) above ₹1 lakh
- Purchase/sale of unlisted shares over ₹1 lakh
- Sale or purchase of immovable property above ₹10 lakh or stamp duty value
Real-World Example
Imagine an NRI living in Dubai who visits India for a short trip and pays ₹60,000 in cash for a hotel stay. According to Rule 114B:
- Residents must quote their PAN in such a case.
- NRIs, however, are exempt, as this transaction is not among the specified exceptions.
This relaxation ensures ease of business and travel for NRIs in India.
Final Words
Understanding PAN requirements is crucial for NRIs engaging in Indian financial systems. While quoting PAN is essential in some high-value transactions like opening a bank or demat account, mutual fund purchases, or buying immovable property, most transactions are exempt for NRIs, making compliance simpler.
However, it’s wise for NRIs who regularly invest or transact in India to apply for a PAN to avoid delays and facilitate easier documentation.
If you need assistance with PAN application, consult professional experts, known for their deep expertise in NRI taxation, documentation, and regulatory compliance.
