The government has proposed stricter reporting requirements under Rule 161 of the Draft Income Tax Rules, 2026, making it compulsory to quote and electronically authenticate the Permanent Account Number (PAN) for certain high-value banking transactions.

The proposal is aimed at enhancing financial transparency, strengthening audit trails for substantial cash movements, and reducing the scope for tax evasion.

Under the draft framework, banks, cooperative banks, and post offices will bear the responsibility of verifying PAN details for specified transactions.

Transactions Where PAN Quoting Will Be Mandatory

As per the proposed Rule 161, individuals will be required to furnish their PAN in the following cases:

The obligation to verify and authenticate PAN details will rest with banks regulated under the Banking Regulation Act, cooperative banks, and designated postal authorities under the Post Master General.

For example, if an individual deposits ₹30 lakh in cash during a financial year, the PAN must be quoted, and the concerned bank will be required to validate it electronically before processing the transaction.

Exemptions Under the Draft Rule

The draft rules also provide exemptions in certain cases.

PAN quoting will not be required if the transaction is undertaken by:

• The Central Government
• A State Government
• A Consular Office

Additionally, exemptions apply to non-resident individuals (other than companies) and foreign companies if:

• The transaction is routed through a banking unit located in an International Financial Services Centre (IFSC), and
• The entity does not have any income taxable in India.

For instance, a foreign company without taxable income in India depositing funds into an IFSC banking account would not be obligated to quote PAN under the proposed rules.

Electronic Authentication Requirement

A key feature of Rule 161 is the mandatory electronic authentication of PAN. The verification process will be overseen by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems).

This digital validation mechanism is intended to create a real-time compliance framework, reducing the possibility of incorrect or fraudulent PAN usage.

Objective Behind the Proposal

The proposed rule is part of broader efforts to modernise tax administration and improve traceability of large-value cash transactions. By mandating PAN authentication for deposits, withdrawals, and certain account openings, the government aims to ensure better reporting standards and enhance monitoring of high-risk financial activities.

If implemented in its current form, Rule 161 will further tighten compliance norms for individuals and institutions dealing with substantial cash transactions.

Summary

Rule 161 of the Draft Income Tax Rules, 2026 proposes mandatory PAN quoting and electronic authentication for cash deposits or withdrawals of ₹20 lakh or more in a financial year, as well as for opening current or cash credit accounts. Banks, cooperative banks, and post offices will be responsible for verification. Certain government bodies and eligible non-residents operating through IFSC units are exempt. The move seeks to improve tax transparency and curb large-scale unreported cash transactions.

This article is intended solely for educational and informational purposes. The securities or companies mentioned are provided as examples and should not be considered as recommendations. Nothing contained herein constitutes personal financial advice or investment recommendations. Readers are advised to conduct their own research and consult a qualified financial advisor before making any investment decisions.

Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.