Demat account is required for Indians engaged in trading and investment. The direct mechanism of storing securities in an electronic format makes buying and selling of stocks and other financial instruments quite smooth and secure. However, for opening a Demat account, a few documents are required, with a PAN card being one of them. This article tries to assess whether it is actually possible to open a Demat account without the need for a PAN card and under what circumstances exceptions can be considered.
Is a PAN Card Necessary for a Demat Account?
The PAN card, as an important document in the context of India, especially in the financial and investment sectors, requires a PAN card to be obtained before applying for an account in the Demat category, according to the Securities and Exchange Board of India, SEBI. These regulations were imposed through a circular issued by SEBI on April 27, 2007, where it specified that whoever applies for an account in the Demat category, regardless of how much he or she wants to invest, has to produce a PAN card.
While opening a Demat account, the applicant needs to produce an original PAN card and send a self-attested copy along with other necessary documents. This rule is not only for individual accounts; in case of multiple holders of a Demat account, PAN card is mandatory for every joint account holder. Also, it is worth mentioning here that though you can open multiple demat accounts, all of them will be linked to only one PAN card.
Why is a PAN card so important?
In fact, a PAN card is nothing but the documentation of all your financial transactions in India, even in the securities market. The income tax department utilizes PAN to track financial transactions, making it a very crucial tool against tax evasion, ensuring that the database records your financial activities.
All your financial transactions-whatever the size or nature of the transaction-beget are consolidated into one profile by your PAN number. Crucially, once it is issued, your PAN number will not change even if you change addresses or your financial data, etc.
Exceptions to the PAN Card Requirement
A Demat account can be opened without a PAN card in only a few exceptions. For most people, the PAN card is a must-have.
The exempt persons cannot acquire a PAN card and are entitled to open a limited-purpose Demat account. Under a limited-purpose Demat account, you can sell any physical securities that you already own but has restrictions on other transactions.
Your Demat account number has two parts:
Scheduled Tribes in North Eastern Regions:
Scheduled tribes from specified North Eastern states of India that include the states of Arunachal Pradesh, Manipur, Mizoram, Tripura, and Nagaland and parts of North Cachar Hills district of Assam may avail of the Demat facility even without furnishing a PAN card if their securities investment is less than Rs. 50,000.
Entities Permitted Under Section 12 of the SEBI Act, 1992 Entities covered under requisition under Section 12 of the SEBI Act, 1992, is exempted from furnishing PAN details to open the Demat account but the account will stay locked for 30 days and then get frozen thereafter if the PAN card is not furnished.
UN Agencies and Tax-Exempt Bodies:
The requirement of PAN is exempt for opening the Demat account for UN agencies and other tax-exempt bodies in India. Similarly, residents of the state of Sikkim are exempt, if they provide evidence of their residence.
Why PAN is Important to the Securities Market?
For most individuals and entities, a PAN card is almost a condition sine qua non for anyone joining the fray of securities trading. It also helps in opening up a Demat account and ensures that all your financial transactions are duly accounted for and recorded by the authorities.
In conclusion, despite all these exceptions, opening of the Demat account sans a PAN card can occur in only a few limited cases. However, a PAN card becomes the essence not only of the requisite legal necessity but also of the tool needed for managing financial transactions by most investors in India.
In conclusion, if you decide to open a Demat account in order to initiate trading in securities, you would require a PAN card unless exempted from the above requirements. A PAN card is not just a formality but the linking document for all your financial activities, promoting transparency and accountability in the financial markets. Make sure to keep the PAN card handy while getting a Demat account since any complications may arise and the experience of investment may not be very smooth.