PAN 2.0: With PAN Card going digital, will you need a physical PAN for KYC, ID proof?

PAN 2.0: With the Modi government announcing a comprehensive upgrade of the PAN infrastructure, taxpayers are wondering whether PAN 2.0 with enhanced QR code will be similar to m-Aadhaar or e-Aadhaar systems. Will PAN 2.0 feature dynamic QR codes for KYC, identity verification or address proof purposes?

PAN Card serves as both a tax identifier and physical identity proof. Under the new PAN 2.0 project, the system is transitioning to digital format. The government has allocated Rs 1,435 crore for a comprehensive upgrade of the current PAN infrastructure. The government has said that PAN 2.0 will be an advanced version offering enhanced user convenience.

Currently, PAN 1.0's electronic version has limited KYC application and cannot serve as address proof in any form. In contrast, Aadhaar remains valid for these purposes across all formats.

Also Read | PAN 2.0 for free! How to get PAN Card with QR code with address update online; step-by-step guide

The Ministry of Finance clarified 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."

Experts suggest that PAN 2.0 will likely support KYC procedures, identity verification and additional functions, similar to m-Aadhaar and e-Aadhaar capabilities.

How can PAN 2.0 possibly be different from the old PAN Card system?

PAN verification alone might be insufficient for KYC requirements, though PAN 2.0 could alter this scenario, feel experts. Additional clarification is required regarding the dynamic QR code features of digital PAN 2.0, particularly its capability to display residential information.

"In its present form, PAN is necessary but not sufficient for KYC. It is not classified as an OVD (Officially Valid Document); 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 (OVD). Aadhaar is a type of OVD," Wriju Ray, Chief Business Officer, IDfy told ET.

According to Ankit Jain, partner at Ved Jain & Associates, financial institutions and employers typically require self-attested physical PAN copies, rather than accepting digital PAN 1.0 for new accounts, loans, or employment procedures.

Rahul Jain from HSA Advocates suggests that whilst current PAN format doesn't fulfil KYC requirements, its Aadhaar linkage could enable KYC verification.

Also Read | PAN 2.0: Why you should apply for new PAN Card with QR code - top 5 benefits explained

"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," Rahul Jain from HSA Advocates told ET.

Regarding identification purposes, both digital versions of PAN can function as valid ID proof. Experts indicate that digital PAN 2.0 might suffice for most situations, potentially eliminating the need for physical cards.

Ankit Jain shares his observations: "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."

The practical application determines whether digital PAN 2.0 will be adequate for your requirements.

Will physical PAN 2.0 be required?

Physical cards may remain necessary for those without digital access, according to Dip Mehta, Partner, EY Forensic and Integrity Services.

"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 states.

Ray from IDfy notes that banks currently require physical PAN presentation during video KYC, though ePAN is acceptable. "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 explains.