Digital PAN 2.0: Will you still need a physical card?

PAN 2.0 is going digital: Will you still need a physical PAN card as ID proof and KYC document?

Besides being a tax identifier PAN works well as a physical identity proof instrument. However, the Permanent Account Number (PAN) system is going digital under the new project dubbed PAN 2.0. The government spent Rs 1435 crore for a complete overhaul of the existing PAN system. Moreover, the government is touting PAN 2.0 as the next generation of PAN which will be convenient for customers and also useful.

In this same context a question may pop in the mind about digital PAN 2.0. Will it be just the same as m-Aadhaar or e-Aadhaar, will PAN 2.0 work in a similar aspect? Can you use online PAN 2.0 with a dynamic QR code for conducting usual transactions like KYC, identity verification? even address proof? These questions arise because at present PAN 1.0 in its electronic form can't be used for KYC purposes in all places and as address proof it can't even be used in any form- electronic or physical. Whereas Aadhaar in all its forms (online/physical) can be used for most of the purposes a common man has needs for including KYC.

What did the government say about digital nature of PAN 2.0

While PAN 2.0 will be digital however taxpayers will still have the option to get new format PAN card physically. The Ministry of Finance said in a press release dated November 26, 2024:_{"Comprehensive use of technology for paperless processes: Complete online paperless process as against prevailing mode. Taxpayer facilitation: Allotment/updation/correction of PAN will be done free of cost and e-PAN will be sent to the registered mail id. For a physical PAN card, the applicant has to make a request along with the prescribed fee of Rs 50 (domestic). For delivery of cards outside India, Rs 15 + India post charges at actuals will be charged to the applicant}."

Digital PAN 2.0 to meet most of the requirements?

While m-Aadhaar and e-Aadhaar can be used for KYC, identity verification and many other purposes, the same thing is expected to be conducted using PAN 2.0, say experts. Let us analyse how PAN 2.0 builds and even adds features existing on the PAN system.

PAN in its present form is not yet sufficient for KYC purposes but PAN 2.0 may

More clarity is needed about the dynamic QR code functionality of PAN 2.0 digital and whether this QR code will have the capability to showcase the address of the user.

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"In its present form PAN is necessary but not sufficient for KYC. It is not classified as an OVD; rather it's a unique identifier used for tax and money laundering purposes. Apart from collecting PAN (i.e. the number) the regulated entity has to still collect an ID card (called Officially Valid Document (OVD)). Aadhaar is a type of OVD," says Wriju Ray, Chief Business Officer, IDfy.

Ankit Jain, partner, Ved Jain & Associates, says, "While applying for a new bank account, or loan, or joining a new organisation, or any such transaction, the digital PAN 1.0 is usually not accepted, and the bank officials or employers usually insist on a self-attested copy of PAN."

Rahul Jain, Associate Counsel, HSA Advocates, says although PAN in its present form is not sufficient for completing KYC but since its now linked with Aadhaar, a possibility may arise for its usage in KYC purposes.

"As per my understanding, due to the linkage of the two documents (Aadhaar-PAN) there are high possibility that the government may decide that QR code provided in PAN 2.0 shall also contain the address proof of a person and in such a scenario PAN 2.0 will be sufficient for conducting KYC," says Jain from HSA Advocates.

PAN 2.0 can very well be used as ID proof in most cases

PAN 2.0 and PAN 1.0, both in their digital form can very well be used as ID proof at various places so a PAN 2.0 will not stop working as a physical ID proof. However, experts say in this context, you may get your work done with a digital PAN 2.0 in most of the case and may not be required to apply for a physical one.

Jain from Ved Jain & Associates shares his personal experience with PAN 1.0 in its digital form. "Based on current experience, digital PAN is accepted at entry points of airports, hotels, trains etc. Digital PANs are also accepted while applying for GST registration, Director Identification Number, Company Registration, etc. The use of Digital PANs for these purposes would continue even in PAN 2.0," he says.

The key point to decide whether a digital PAN 2.0 will serve your purposes or not is utility i.e. if your purpose is solved.

Jain from HSA Advocates says, "It is to be noted that though banks have started using M-Aadhaar they require the customers to provide a photocopy of their physical Aadhaar card, in the same manner it might be mandatory for the customers for providing a photocopy of their physical PAN card to the bank even with the introduction of digital PAN 2.0."

PAN 2.0 could be used for digital KYC purposes if necessary digital infrastructure is in place

Experts say the necessary digital back-end infrastructure needs to be placed first for PAN 2.0 to fully utilise its functionalities and make the physical PAN card irrelevant.

Dip Mehta, Partner, EY Forensic and Integrity Services says, "The requirement for a physical PAN card could become irrelevant if PAN 2.0 in its digital form is universally recognized and accepted. Similar to how Aadhaar is used via DigiLocker or the M-Aadhaar app, digital PAN could be used for KYC in a fully digital ecosystem, reducing fraud risk and provide a more convenient KYC experience. However, transitioning to a completely paperless KYC process may take time. This is because regulatory requirements, institutional readiness, and customer familiarity with the new system will influence the pace of adoption."

Physical PAN 2.0 is still required in some places

Mehta from EY highlights that in certain situations- such as those involving individuals without access to digital tools - may still necessitate the use of a physical PAN card. "For the foreseeable future, organizations will likely need to ensure that both digital and physical PAN formats are accommodated in their KYC workflows. Over time, as PAN 2.0's functionalities gain trust and widespread acceptance, reliance on physical cards should reduce significantly," he says.

Ray from IDfy says under the PAN 1.0 system banks insist on physical PAN despite video KYC. "In the case of video KYC, the applicant is required to show a PAN Card on the video call. In such cases ePAN is also allowed. Again, both formats shall continue and really there is no change whatsoever to the process based on the current release of PAN 2.0," he says.

According to Kinjal Bhuta, Secretary, Bombay Chartered Accountants' Society (BCAS), "The digital QR enables PAN to have all the details on a dynamic QR and would not require carrying the PAN physically. The requirement of physical PAN for KYC purposes may however not completely become irrelevant as the conversion and application of New digital PAN is not mandatory and those who want to continue with the existing PAN have an option to do so. The aim of the PAN 2.0 Project is enhanced security and digital accessibility. It is anticipated that PAN's digital integration with Aadhaar shall enable hassle free verification process in future."

According to SR Patnaik, Partner (head - taxation), Cyril Amarchand Mangaldas, "From a practical perspective and knowing how India is not a unified country in her digital preparedness, there is a possibility that certain people may still insist on having a physical PAN necessary because they may not have the infrastructure to verify the validity of your ePAN. Hence, the requirement of carrying a physical PAN may be there for some time. However, purely from a technical perspective, there is no need to carry a physical copy anywhere."

This story originally appeared on: India Times - Author:Faqs of Insurances