All You Need to Know About PAN 2.0

One of the latest advancements in this direction is PAN 2.0, a reimagined version of the Permanent Account Number (PAN), which forms the backbone of tax identification in India. PAN 2.0 represents the next step toward aligning India's tax system with modern digital frameworks while addressing several gaps in the current structure.

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, approved the PAN 2.0 initiative on November 25, 2024. The approval for the PAN 2.0 Project of the Income Tax Department is with a financial outlay of Rs 1,435 crore.

Union Minister Mr Ashwini Vaishnaw said, "PAN card is part of our life which is important for the middle class and small businesses. It has been highly upgraded and PAN 2.0 has been approved today. The existing system will be upgraded, and the digital backbone will be brought in a new way."

In this article, we'll delve into the intricacies of PAN 2.0, its purpose, features, benefits, and implications for individuals, businesses, and the broader economy.

What Is PAN 2.0?

PAN 2.0 is an enhanced version of the traditional Permanent Account Number introduced to improve the efficiency of tax-related operations. While the current PAN primarily serves as a unique identifier for tax purposes, PAN 2.0 is designed with advanced capabilities, integrating biometric and digital features. It aims to make tax compliance seamless and strengthen the fight against financial fraud, tax evasion, and identity theft.

The initiative is part of India's broader push toward digital governance, which is in line with efforts such as Aadhaar, e-KYC, and the Goods and Services Tax (GST) framework.

[Read: How to Track All Your Mutual Funds With PAN]

Key Features of PAN 2.0

1. Biometric Integration

PAN 2.0 integrates biometric authentication, such as fingerprints and iris scans, to establish a stronger link between an individual and their PAN. This feature minimizes the risk of identity fraud and ensures that a PAN is linked to a unique individual.

2. Digital PAN Cards with QR code

The traditional physical PAN card will be replaced or complemented by a digital version that can be stored securely on devices or cloud platforms. The digital PAN will include a scannable QR code containing essential details for quick verification.

3. Real-time Issuance

PAN 2.0 will enable real-time issuance of PAN for individuals and entities through a fully digitised process, reducing the time and paperwork currently involved.

4. Enhanced Data Security

Using blockchain and advanced encryption, PAN 2.0 aims to secure user data better and reduce vulnerabilities in the tax identification system.

5. Universal Applicability

While the traditional PAN focuses on income tax, PAN 2.0 is envisioned as a broader financial identifier, linking with multiple systems like bank accounts, GST, and digital wallets.

Why Is PAN 2.0 Needed?

• Combat Tax Evasion

  Tax evasion is a persistent challenge in India. PAN 2.0, with its biometric integration and real-time tracking, will help authorities identify discrepancies more efficiently.

• Streamline Digital Transactions

  With the rapid growth of digital payments and online financial activities, a modernised PAN system ensures better monitoring and compliance in these domains.

• Prevent Identity Fraud

  Biometric and digital security features significantly reduce the risk of multiple PANs being issued to a single individual or fraudulent use of someone else's PAN.

• Integrate Financial Systems

  PAN 2.0 will act as a unifying identifier across different financial platforms, enhancing interconnectivity and simplifying processes for users.

• Facilitate Real-time Data

  The integration with advanced technologies allows for real-time updates and analytics, improving decision-making for tax authorities and financial regulators.

How Will PAN 2.0 Work?

1. Registration Process

- Application Submission: Applicants can apply through an online portal using their Aadhaar number for identity verification.

- Biometric Authentication: Biometric data such as fingerprints and iris scans will be captured during the registration process.

- Instant Issuance: The PAN 2.0 will be issued instantly digitally once verified.

2. Features in Action

- A scannable QR code will store encrypted information such as the PAN number, name, date of birth, and biometric details.

- For transactions requiring PAN, scanning the QR code or biometric verification will suffice, removing the need for manual input or document submission.

3. Interlinking with Other Systems

PAN 2.0 will be directly linked to Aadhaar, bank accounts, GST numbers, and investment accounts, creating a consolidated financial profile.

This linkage will also facilitate automatic updates across systems, ensuring consistency in user details.

[Read: Know About Tax on Mutual Funds in India Here]

Benefits of PAN 2.0

For Individuals

• Ease of Access: A fully digital PAN eliminates the need to carry physical cards.

• Improved Security: Biometric features ensure that the PAN cannot be misused.

• Streamlined Processes: Real-time issuance and integration with Aadhaar simplify compliance.

For Businesses

• Seamless Onboarding: Businesses can obtain PANs for their operations instantly, aiding in quicker commencement of activities.

• Better Tax Compliance: Automated data synchronisation reduces errors and improves reporting accuracy.

• Simplified KYC: PAN 2.0 integrates KYC processes for businesses, speeding up operations like opening bank accounts or registering for GST.

For Tax Authorities

• Enhanced Monitoring: The interlinked system provides real-time insights into financial transactions and tax compliance.

• Fraud Detection: Advanced security features help identify fraudulent activities effectively.

• Efficiency Gains: A digitised system reduces the administrative burden, enabling faster grievance resolution.

Challenges and Concerns

While PAN 2.0 promises significant improvements, some challenges and concerns need to be addressed.

The integration of biometric and financial data raises concerns about misuse or breaches. Authorities must ensure robust safeguards and adhere to data protection laws. A significant portion of the population, especially in rural areas, may face difficulties navigating the digital process. Proper awareness campaigns and support systems are necessary.

The government and businesses may incur high costs to upgrade systems and infrastructure to support PAN 2.0. Existing PAN holders might face challenges during the transition to PAN 2.0, particularly in updating their details or linking multiple accounts.

Steps to Transition to PAN 2.0

The transition to PAN 2.0 will be implemented in phases to minimise disruptions:

• Awareness Campaigns: The government will launch campaigns to educate the public about PAN 2.0, its benefits, and the application process.

• Voluntary Transition: Initially, individuals and businesses will have the option to transition voluntarily.

• Mandatory Adoption: PAN 2.0 will become mandatory for all financial and tax-related transactions over time.

• Legacy Support: The traditional PAN system will remain operational for a defined period to ensure a smooth transition.

The government has yet to announce the rollout date for PAN 2.0, but this initiative is anticipated to significantly enhance taxpayer services and bolster the nation's digital infrastructure.

Potential Impact on India's Economy

PAN 2.0's advanced features will deter tax evasion and promote greater compliance, boosting government revenue. Its integration with digital systems will enable individuals in remote areas easier access to financial services.

PAN 2.0 aligns India's tax and financial systems with global best practices, improving the ease of doing business and attracting foreign investment. Additionally, real-time data analytics enabled by PAN 2.0 will provide valuable insights for framing policies and addressing economic challenges.

To conclude...

PAN 2.0 is a visionary initiative that has the potential to revolutionise India's tax and financial ecosystem. By leveraging advanced technologies like biometrics, encryption, and blockchain, it addresses critical challenges in tax compliance, identity fraud, and digital integration. While challenges such as data privacy, digital literacy, and implementation costs exist, a phased and well-planned rollout can help mitigate these hurdles.

As India progresses toward a digital future, PAN 2.0 is set to play a pivotal role in strengthening governance, fostering financial transparency, and empowering citizens and businesses alike. Staying informed and prepared for this transition will ensure that you can make the most of its benefits.

We are on Telegram! Join thousands of like-minded investors and our editors right now.

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.