MUMBAI, MAR 6:  As a part of strengtheningthe Know Your Customer (KYC) norms, the permanent account number (PAN) has been made the sole identification number by the regulatory authority in all financial market transactions.
The intention behind this move was to do away with fraud and facilitate an audit trail in case of malpractices found in the system. But it seems that certain individuals with manipulative intentions in the stock market has been finding new ways to effectively execute their plans. This has already raised alarm bells among some domestic brokerage houses which are beginning to re-check all the details pertaining to the clients together with their documentary proofs.

It has come to the notice of some domestic brokerage houses that some of their clients had opened their trading and demat account showing PAN details as the proof of identity.

Once these clients got their accounts opened, they had applied for another PAN card with the income tax authority showing the address proof of some other place and were getting their former PAN cards cancelled. So naturally, all the transaction involved with that particular account would be under the cancelled PAN card.

With the KYC norms being made stringent by the market watchdog Securities and Exchange Board Of India (Sebi), the domestic brokerage houses are finding themselves in a hapless situation.

As inspection of all the accounts maintained by the Depository Participants (DPs) are being made stricter, and an imminent regulatory action on the cards for not adhering to the laid rules and regulations prescribed under KYC norms, these broking houses are feeling the heat now.

The fault lies with the brokerage houses themselves, says an official with a domestic brokerage.

In a booming capital market, to attract more clients and generate large revenues through brokerage fees, these firms had shown some laxity in checking the necessary documents and authenticity of the documents provided by their clients while opening the accounts then.

Sebi had already made it clear way back in August 2004, that many accounts still do not have the necessary details regarding the clients and the trading members should ensure their client details are updated at periodical intervals. Though late, Sebi is handing out stringent punishment for erring members.

Broking houses have issued deadlines to their clients to submit the necessary documents as proof and failure to do so will lead to suspension or freezing of their trading accounts, said an official with a domestic brokerage house.

-Financial Express

On December 31, 2006, as many as 4.3 million demat accounts suspended due to the lack of PAN details of the account holders. India had 9.9 million demat accounts and now, almost 43 per cent of that has been suspended with the two depositories NSDL and CDSL.

Surprisingly, with the suspension of Country’s 43 percent demat account, India share market has seen no effect on the trading.

AT National Stock Exchange, the average trading volume in equity market was Rs 8,505 crore for the month of December. And after the suspension, for the nine trading days for January it went up to Rs 8,476 crore.

On Friday, it crossed the volume of Rs 10,000 crore on a record trading volume of Rs 10,015 crore.

The January average jumps, except January 2, have touched to Rs 8,793 crore that showed better performance than the December average.

According to the reports and the trading figure, these 4.3 million suspended demat accounts have had no impact on the trading volumes.

The delivery based trading holds comparatively low volume in trading. The intraday trading holds major volume in daily trading. With this, the passive traders do not pose any impact on the trading volumes.

TIMES NEWS NETWORK[ THURSDAY, MARCH 01, 2007 02:47:04 AM]
 
It is final— your PAN number will be the only number you will need to invest in debt or equity instruments. With the Permanent Account Number (PAN) being mandated as the unique identification number for all transactions, investors need not follow multiple procedures.

PAN will now be the base on which additional numbers for various categories of investments will be issued. Investors will no longer need to submit several sets of documents and proof of address to invest in the securites market.

This will prevent the kind of problems that investors had to face when Mutual Fund Identification Number (MIN) was introduced for investing over Rs 50,000 in mutual funds. Says UTI AMC chairman UK Sinha, “It is positive for investors as it is far less cumbersome, compared to the earlier requirements.”

However, it will also pay to keep a close tab on your investments and their source. For, the PAN — a ten digit alphanumerical number issued by the income-tax department to distinguish each individual tax filer will, leave a clear audit trail for the tax man.

Tax authorities can now match your earnings from investments with your income-tax returns. So those attempting to evade taxes will now find the going tough. Compliance by investors is expected to go up with his move.

For the government, greater compliance is sure to reflect in higher revenues. But the upside is that the tax department may seek less details from tax payers as a database of information on investments becomes available with PAN being made mandatory on several transactions.

Starting with the income-tax return several years ago, it is now mandatory to quote PAN on several transactions. These include investments of Rs 50,000 and above in initial public offerings (IPOs) and mutual funds (MFs), besides opening a demat account.
 

NDTV – Wednesday, February 21, 2007 (New Delhi):

Dalal Street is booming and if you want a slice get ready to share it with the taxman. Anyone who opens a demat account might have to pay a higher effective tax if the tax departments proposals go through.

Right now, service tax is already included in the total charges paid by an investor who opens a demat account. However, now the tax department wants to levy service tax on all transaction between depository participants like NSDL and CSDL as well.

If that happens, the cost for maintaining a demat account will go up and the extra burden will be passed on to the account holder.

“Mutual fund investors may also face a higher tax burden after this budget,” said M Murlidharan, Manager, PwC.

Entry and exit loads

NDTV has learnt that the tax department is thinking of levying a service tax on entry and exit loads over and above the service tax on fund management charges, currently levied.

Whether the Finance Minister actually implements these proposals would only be known on budget day. However, experts say that any such move will go against the Finance Minister’s stand that mutual fund investments need to be encouraged.

Mutual fund investors are already paying twice the STT that stock market players do. Once when they buy a mutual fund and second when the fund manager buys stocks.

Now if service tax is levied on entry and exit loads, investors would face another round of double taxation and experts say that would be a huge blow to the mutual fund industry.

Mumbai, Feb. 28 (PTI): Demat account will be opened only on the basis of PAN Card details, Central Depository Services Ltd (CDSL) today said after Finance Minister P Chidambaram’s Budget proposal that PAN will be the sole identification number for participation in the security market.

From April 1 last year, aspiring demat account holders were asked to provide PAN details for opening deat accounts.

Further, demat accounts which were opened prior to April 1, 2006 and which were not PAN-compliant as on December 31, 2006, were suspended for debits with effect from January 1, 2007.

There were 22.99 lakh demat account holders registered with CDSL of February 23 out of which 17.79 lakh demat accounts were active meaning they had provided PAN details, CDSL said.

There were 1.98 lakh demat accounts registered with CDSL remained suspended for debits and there were 3.22 lakh demat accounts suspended but without any balance, CDSL added.