Why do hr ask for pan card

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Last updated: April 8, 2026

Quick Answer: HR departments ask for PAN cards primarily for tax compliance and employee verification purposes. Under Section 139A of the Income Tax Act, 1961, employers must collect PAN from employees earning above ₹2.5 lakh annually to deduct TDS correctly. PAN serves as a unique 10-digit alphanumeric identifier issued by the Income Tax Department, helping prevent tax evasion. Additionally, it verifies identity for background checks and financial transactions like salary processing.

Key Facts

PAN is mandatory for employees earning above ₹2.5 lakh annually under Indian tax laws
PAN was introduced in 1972 and made compulsory for all taxpayers in 1976
Over 50 crore PAN cards have been issued in India as of 2023
Employers face penalties up to ₹10,000 for not collecting PAN as per Income Tax Act
PAN verification reduces identity fraud by linking to Aadhaar since 2017

Overview

The Permanent Account Number (PAN) is a crucial identification tool in India's financial and employment systems. Introduced in 1972 under the Income Tax Act, 1961, PAN was initially voluntary but became mandatory for all taxpayers in 1976 through amendments. This 10-character alphanumeric code (e.g., ABCDE1234F) is issued by the Income Tax Department and serves as a universal identifier for individuals and entities in tax-related matters. Historically, before PAN's widespread adoption, tax evasion was more prevalent due to fragmented identification systems. By the 1990s, PAN became integrated with banking and financial transactions, and in 2017, linking with Aadhaar further strengthened its verification capabilities. Today, PAN is essential for various financial activities, including opening bank accounts, investing, and property transactions, making it a cornerstone of India's digital economy and compliance framework.

How It Works

HR departments request PAN cards during employee onboarding as part of compliance with tax regulations. The process begins when a new hire submits their PAN card; HR verifies its authenticity through the Income Tax Department's online portal or by checking the card's security features like holograms and QR codes. For tax purposes, HR uses the PAN to calculate and deduct Tax Deducted at Source (TDS) from salaries, ensuring accurate reporting to authorities. If an employee lacks a PAN, HR must ensure they apply for one within a specified timeframe, often requiring Form 60 as a temporary measure. In background checks, PAN helps verify identity by cross-referencing with databases like Aadhaar or previous employment records. This system reduces fraud by preventing duplicate identities and ensuring salary payments are traceable, with penalties for non-compliance including fines up to ₹10,000 for employers under Section 272B of the Income Tax Act.

Why It Matters

Collecting PAN cards is vital for both legal compliance and operational efficiency in workplaces. Legally, it helps employers avoid penalties and audits by ensuring proper TDS deductions, which contributed to over ₹8.3 lakh crore in direct tax collections in 2022-23. For employees, it facilitates accurate tax filings and refunds, reducing disputes with tax authorities. Beyond taxes, PAN enhances security by minimizing identity fraud in hiring; for instance, it prevents issues like fake credentials or duplicate employment. In real-world applications, PAN integration with systems like EPFO and ESIC streamlines benefits administration, while in sectors like finance or IT, it's crucial for compliance with anti-money laundering norms. Overall, this practice supports India's digital governance goals, promoting transparency and reducing black money circulation in the economy.