Foreign directors in Indian Company – Requirement of obtaining Permanent Account Number:
Section 139A of The Indian Income Tax Act specifies the list of persons who are required to obtain Permanent Account Number (PAN card) within the prescribed time limits.
Finance Act, 2018 has introduced clause (v) and (vi) to sub-section (1) to Section 139(1) to include the following categories of persons who are also now required to obtain their PAN card.
- Every resident, other than individual, which enters into a financial transaction of an amount aggregating to Rs. 250,000/- or more in a financial year.
- Every person who is a Managing Director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer of the person referred to in above clause or any person competent to act on behalf of the person referred to in above clause.
This signifies that every person, whether resident or non-resident in India, who is a director in an Indian Company that has financial transaction of Rs. 250,000/- or more in a financial year will have to compulsory obtain Indian PAN card.
Let us take an example that say a Company in Italy has set up its Indian Private Limited Company in India (ICo). The ICo has three directors, two of them are Italian resident and one Indian resident. The ICo has financial transaction in excess of Rs. 250,000/- in a financial year. Let us also assume that the Italian directors are not working for Indian company and they are not paid any salary from the ICo.
According to the new provisions in the Act, in addition to the Indian director, both the Italian directors are also required to obtain Indian PAN card.
Similar situation will also prevail if Limited Liability Partnership (LLP) is formed and there are foreign partners in that LLP. In such case the partners in LLP, whether resident in India or non-resident, will have to obtain Indian PAN card.
Penalty for failure to comply with this provision:
If any person fails to comply with the provisions of obtaining PAN card as stated above, the Assessing Officer may, under section 272B of The Indian Income Tax Act, levy penalty of a sum of Rs. 10,000/- for such default.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.