PAN rule hurts credit card sales

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Mumbai, April 1: The number of new credit cards issued by banks has gone down by almost 25% over the last couple of months. Reason: the Central Board of Direct Taxes (CBDT) has dropped a bombshell by making it mandatory for prospective cardholders to give their Permanent Account Number/attach Form 16 with their application forms.

A notification to this effect was issued by the Income Tax (I-T) department on December 1, 2004 and banks have started seeking this information from February. Though the intention of the board is to widen the tax base, it has scared the wits out of people like the neighbourhood grocery shop owner, the paanwala, et al, who transact business in cash. They fear that revenue authorities may ‘pick on them’ once they start using the cards.

According to ICICI Bank’s joint general manager, retail asset products group, B Madhivanan, this move will be unfavourable for the growth of the credit card segment. “As per the one-by-six rule, any credit card holder has to file income tax returns, which ensures that most people are brought under the tax net. But mandating a customer to submit PAN card or Form 16 for acquiring a credit card will be detrimental to the growth of this segment.”

Though banks have moved the Indian Banks’ Association (IBA) to take up the matter with the CBDT, it is unlikely that their prayers to do away with the new provisions will be heard, say sources from the industry.

Credit cards are covered under the one-by-six scheme, which entails compulsory filing of I-T returns. “This move will lead to a loss of opportunity for the banks to reach out to untapped markets, which is costlier for us than the loss in number of issuances,” said ICICI Bank’s senior general manager, retail banking, V Vaidyanathan.

A senior official with HDFC Bank said, “Compulsory quoting of PAN will facilitate collation and verification of information received through annual information return. This will enable the income-tax department to reduce interface with the public for collection of information and will also widen the tax base.”