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PAN verification by payroll managers

Incorrect employee Permanent Account Number (PAN) in Form 24Q leads to problems for both the organization and employees. Organizations spend significant time and incur costs in refiling Form 24Q for correcting mistakes made in earlier filings. We typically come across 3 types of incorrect PAN.

1. Structurally invalid PAN: The PAN of an employee does not conform to the PAN structure mandated by the Income Tax Department, i.e. the PAN does not have 10 digits, the fourth digit is not “P” etc. At the time of filing of Form 24Q, FVU files with structurally invalid PAN are rejected and organizations need to make corrections to the PAN before they can file Form 24Q.

2. Structurally valid but incorrect PAN: An employee record may contain the PAN of another person in Form 24Q. This leads to credit of TDS to an incorrect person in Form 26AS. Many employees do not check Form 26AS before filing their annual tax return and simply go by the Form 16 issued by their employer for filing their return. If the employee’s PAN is incorrectly entered in Form 24Q, the Income Tax Department – in response to the tax return filed by the employee – may raise a demand for tax payment from the employee. Consequently, the employee is put to hardship while filing the reply to the Income Tax Department’s demand notice. It is not easy for employees to go behind their organization to get Form 24Q refiled with the correct PAN. If the organization does not refile Form 24Q with the correct PAN of the employee, the Income Tax Department’s demand cannot be satisfactorily closed without the employee making the income tax payment as stated in the demand.

3. Structurally valid, but non-existent PAN: There are instances when a PAN is structurally correct but the PAN may not have been assigned to anyone by the Income Tax Department. Here again, employees may be put to hardship on account of not receiving the TDS credit in their Form 26AS.

Organizations would do well to verify the PAN of their employees prior to filing Form 24Q. The TRACES site now allows organizations to verify PAN of employees one by one. This is not very helpful in case an organization has even 100 employees whose PAN need to be verified. Checking the PAN of each employee one after another can be very arduous.

Currently, the Income Tax Department allows certain authorised entities to verify PAN (through screen, file upload or third-party software APIs) online. Among TDS deductors, only companies are included in this list. Also, there is a fee to be paid for this service. Maybe it is time the department considered allowing all organizations to avail this facility free of cost. After all, if the department can allow verification of a single PAN (through the TRACES site) at any point in time, why not allow verification of multiple PANs in one go? PAN verification prior to filing of Form 24Q can lead to significant time and cost savings to organizations by preventing incorrect PAN from getting into Form 24Q files.