IMPORTANCE OF FOURTH LETTER IN PAN

IMPORTANCE OF FOURTH LETTER IN PAN

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IMPORTANCE OF FOURTH LETTER IN PAN

 

As all of you know The Income Tax Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Indian Income Tax Department.

 

A typical PAN for an individual would be AAHPB1452M.

 

However, this appears to be a mysterious coded number to most of the people, there are some elements which would help you to validate & read a PAN.

 

The fourth letter of your PAN reflects your status.

 

4TH LETTER IN PAN STATUS
“P” INDIVIDUAL
“H” HUF
“F” FIRMS
“C” COMPANIES
“A” ASSOCIATION OF PERSON
“B” BODY OF INDIVIDUAL

 

 

The fifth letter of PAN is the first letter of your surname in case of individuals and the first letter of the name in other cases.

 

What will happen if someone takes PAN with wrong 4th letter?

 

Let us discussed one real example with this contest.

 

A Co-Operative society name “XYZ. Co-Operative Society” was apply for the pan to the Income Tax Department & get the PAN after certain days with No. “AAABX1417Q”.

 

If we carefully look the PAN no. 4th letter is ‘B’ & ‘B’ alphabet stands for Body of Individual. It looks normal to all of us but the real story starts with this Definition mentioned in the Income Tax Act, 1961.

 

A Cooperative Society is a taxable entity under the Income Tax Act, 1961. A Cooperative Society under the Act is to be treated as an association of persons (AOP), which is included in the definition of ‘person’ under the Income Tax Act, 1961.

 

So the Co-Operative society had to get register as AOP in Income Tax Act, 1961. But the entity gets registered under BOI (Body of individual) in this case.

 

A deduction under section 80P is given exclusive to Co-Operative societies under Income Tax Act, 1961.100% of profits and gains attributable to those activities specified in the Income Tax Act, 1961.

 

That means Co-Operative Societies are eligible to deduction under section 80P if they register as AOP and earns profits from the specified activities as per Income Tax Act, 1961.

 

In A.Y. 18-19 i.e. F.Y. 17-18 the bal. sheet & p&L of entity were finalized  by the statutory auditor & the statutory auditor was not in aware of this mistake. They certified the financial statements and present the unqualified opinion in the audit report.

 

Then the tax auditor of the entity also checks the realibility & accuracy of the financial statements and prepared the computation for 17-18. While preparing the computation of the entity the auditor has in mind about the deduction given under section 80P to the Co-Operative society.

 

Section 80P gives the 100% deduction towards the total income of the Co-Operative society. But the accounting software didn’t give the option of section 80P of deduction. After all discussion auditor come to know that the entity had wrongly get register as BOI ,they had to get register under AOP.

 

Due to this confusion & casualness the entity suffers the tax of Rs.1,22,990, as deduction under section 80P is not available to BOI.

 

If they want to save this tax entity has to surrender this pan and opt for. New PAN no. & make adjustment in GST No. , PT No. , PF No. , ESIC No. & other statutory no. of which PAN is base.

 

So, while making application for PAN carefully understand & check the status we are opting for. Understand the provisions of various laws which are applicable to us & make application accordingly.

 

Bhushan Tidke

(Article Assistant)

Nagpur

 

 

 

 

1 Comment

  1. February 20, 2022
    Mukesh Shah

    Very Nice, also inform solution, how to rectify such error

    Reply

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