Who Must Apply for PAN in India – Section 262 of the Income Tax Act, 2025

Let me start with something I’ve seen many times.

A young employee receives their first salary offer. HR asks for PAN. The person says, “But I don’t even pay tax yet. Why do I need it?”

This is where confusion usually begins.

Under Section 262 of the new Income Tax Act, 2025, PAN (Permanent Account Number) is not only about paying income tax. It is about identity, compliance, and tracking certain financial activities in India.

Note: Income tax act 2025 is applicable with effect from 01/04/2026

In this guide, we’ll clearly understand:

• Who must apply for PAN
• When PAN becomes compulsory
• How Aadhaar is connected
• Where PAN must be quoted

By the end, you should feel confident about when and why PAN becomes mandatory in real-life situations.

What PAN Actually Means (In Practical Terms)

PAN is a 10-character alphanumeric number issued by the Income Tax Department.

Think of it like this:

Your Aadhaar confirms who you are.
Your PAN tracks your financial identity.

In practice, once PAN is allotted:

• Your income
• Tax payments
• Filed returns
• Certain high-value transactions

are all linked to this one number.

Section 262 mainly explains who must apply for PAN, even if they have never paid tax before.

Understanding the Structure of PAN (So You Don’t Get Confused in Forms)

A PAN looks like this: ANCPE1234F

It is not random. Each character has a purpose.

First Three Letters – Alphabet Series

These are random letters from AAA to ZZZ.

They do not indicate your income or location.
Many beginners try to decode them. There’s no personal meaning here.

Fourth Character – Type of PAN Holder

This is important.

So if the fourth letter is P, it means the PAN belongs to an individual.

Many people assume PAN is only for individuals. In reality, companies, trusts, firms, and even government bodies have PAN.

Fifth Character – First Letter of Surname or Entity Name

For individuals: First letter of surname.
For companies or firms: First letter of entity name.

Example:

• Rohit Sharma → S
• ABC Traders Pvt Ltd → A

Sixth to Ninth Characters – Numbers

These make the PAN unique.

Even if two people have the same surname, these numbers make their PAN different.

Tenth Character – Check Digit

This is a verification letter.

It helps systems detect typing mistakes.
You don’t need to understand its calculation.

Understanding this structure builds confidence when filling bank forms, KYC, or income tax documents.

When PAN Becomes Mandatory Under Section 262

Now let’s come to the most practical part.

Section 262(1) clearly lists situations where PAN is compulsory.

1.When Income Crosses Basic Exemption Limit

If your total income exceeds the maximum amount not chargeable to tax, you must apply for PAN.

Example: Suppose the exemption limit is ₹3,00,000 and your income is ₹3,50,000.

Even if:

• Your employer deducted TDS
• Or your final tax liability is zero

PAN is still compulsory.

Many beginners think PAN is needed only if tax is payable. That is not correct in practice.

2.Business or Profession Turnover Above ₹5 Lakh

If you run a business or profession and your:

• Sales
• Turnover
• Gross receipts

exceed ₹5,00,000 in a year, PAN becomes mandatory.

This applies to:

• Freelancers
• Small shop owners
• Tuition teachers
• Consultants

Even if profit is small, turnover crossing ₹5 lakh triggers PAN requirement.

In real life, many small businesses cross this limit without realising the compliance requirement.

3.When You Are Required to File Income Tax Return

If you fall under return filing requirements (Section 263), PAN is compulsory.

Even if tax payable is nil, filing obligation makes PAN mandatory.

This surprises many first-time filers.

4.Non-Individual Resident Entities Crossing ₹2.5 Lakh Transactions

If a resident entity (other than individual) enters into financial transactions of ₹2,50,000 or more in a year, PAN is required.

Example: A small trust receives donations totaling ₹3 lakh in a year. PAN becomes compulsory.

5.Key Persons of Such Entities

If you are:

• Director
• Partner
• Trustee
• Karta
• CEO
• Principal Officer

PAN is required separately.

Many assume organisation’s PAN is enough. It is not.

6.Notified Transactions

For certain high-value transactions notified by authorities, PAN may be required before entering into them.

This ensures financial tracking.

Voluntary PAN Application

Even if none of the above applies, you can apply voluntarily.

Students, homemakers, and early professionals often apply early because PAN becomes useful for:

• Banking
• Investments
• Job onboarding

Transactions Where Quoting PAN Is Mandatory

Now let me explain something practical.

Even if you are not paying income tax, PAN may still be required during certain transactions.

Here are common examples:

• Buying or Selling Property Above ₹10 Lakh. If property value exceeds ₹10 lakh, PAN must be quoted by both buyer and seller. Example: Flat purchase worth ₹35 lakh → PAN compulsory.
• Cash Deposit Above ₹50,000 in One Day. If you deposit more than ₹50,000 cash in a bank in one day, PAN is required. Example: Deposit ₹70,000 cash → PAN must be quoted.
• Buying Jewellery Above ₹2 Lakh. Single transaction exceeding ₹2 lakh requires PAN. Example: Buying jewellery worth ₹2.5 lakh → PAN mandatory.
• Opening Bank Account (Except Basic Savings Account). Most regular savings or current accounts require PAN or Form 60.
• Opening Demat Account. PAN is compulsory for opening demat accounts. Even if you buy only one share, PAN is required.
• Life Insurance Premium Above ₹50,000 per Year. If annual premium exceeds ₹50,000 → PAN required.
• Mutual Fund Investment Above ₹50,000. Lump sum investment over ₹50,000 requires PAN.

These rules exist to track high-value financial activities and reduce misuse of cash transactions.

One PAN Only – No Duplicates

A person can hold only one PAN.

If someone holds more than one PAN: Penalty may be ₹10,000 per default under Section 272B.

In practice, duplicate PAN issues happen due to:

• Name change
• Reapplication during delay

If duplicate exists, surrender immediately.

PAN and Aadhaar Linkage

This is very important.

If you are eligible for Aadhaar:

• Aadhaar must be quoted while applying for PAN.
• Aadhaar must be linked after PAN allotment.

If not linked, PAN may become inoperative.

Many people realise this only when their PAN stops working for banking or filing returns.

Instant e-PAN Using Aadhaar

For individuals without PAN, there is a free online facility through the income tax portal.

Conditions:

• Must be individual
• Must not already have PAN
• Aadhaar must be valid
• Mobile linked with Aadhaar

The process is OTP-based and fully online.

In practice, many first-time earners use this facility before starting job or investments.

Updating PAN Details

Mistakes in name, date of birth, or address can be corrected.

Small mismatches often create problems later in:

• Return filing
• Bank KYC
• Demat accounts

Corrections can be made using the designated PAN correction form or Aadhaar-based update facility.

Why Section 262 Matters for Beginners

Section 262 clarifies something important:

PAN is not just for paying tax.

It is required when:

• Income crosses limits
• Business turnover crosses limits
• Financial transactions cross thresholds
• Return filing becomes mandatory

Understanding this early avoids penalties and last-minute stress.

Conclusion

Section 262 of the Income Tax Act, 2025 clearly explains who must apply for PAN and when it becomes compulsory.

Here is what you should remember:

• PAN is a financial identity, not just a tax number.
• Income and turnover limits can trigger PAN requirement.
• Many financial transactions require quoting PAN.
• Only one PAN is allowed.
• Aadhaar linking is important to keep PAN active.

If you are beginning your financial journey in India, getting clarity about PAN is the first strong step.