For all types of transactions in the financial market, permanent account number (PAN) would henceforth be mandatory.

On Friday, finance minister P Chidambaram said that this would be applicable subject to suitable threshold exemption limits. However, the PAN card is already mandatory if you need to invest in a mutual fund or set up a demat account or open a bank account.

Almost all financial market transactions are through cheques, and for opening a bank account one needs a PAN. Market players feel this will not have any major impact on financial transactions. However, it would lead to greater tax compliance.

“The government is focusing on tax compliance than increasing tax rates. It is in line with its attempts to levy tax at the point of sale. Using PAN is an effective tool in this regard,” said Gaurang Shah, MD, Kotak Life Insurance.

“It is much easier to collect data from the 17 odd insurance companies about individuals who are due to pay tax. However, we will still need to see the fine print about how this will be implemented,” Shah added.

In the securities market, however, use of PAN is mandatory and since February 1 Sebi also made it mandatory for all mutual fund investments, as part of the ‘know-your-customer’ (KYC) norms.

Earlier the PAN card was necessary for investments above Rs 50,000.

Virtually accepting the recommendations of the R H Patil Committee report on corporate debt market, the government today waived the tax to be deducted at source (TDS) on the dematerialised trading of corporate bonds listed on recognised stock exchanges. 
 
Further, to create a nation-wide market, the government has urged the empowered committee of state finance ministers to work out a uniform stamp duty structure for bonds. 
 
Corporate bonds are thinly traded as the varying stamp duty and TDS rates across states increase the cost of transaction, thereby driving the retail investors towards fixed deposit schemes of mutual funds and banks. 
 
According to Dr R H Patil, chairman of the Clearing Corporation of India and chairman of the committee on corporate debt market, this move will boost liquidity and improve the retail participation. 
 
The Union budget has also proposed a mechanism allowing trading in domestic convertible bonds after stripping the embedded equity option. This will allow the two components to be traded separately. 
 
The market for convertible bonds is almost absent in India, forcing most companies to issue these bonds overseas. 
 
According to Hitendra Dave, co-head of global capital markets, India, HSBC, the tax waiver will be an incentive for Indian companies to issue convertible bonds within the country rather than flocking to the overseas market. 
 
This comes at a time when the global markets are facing a fund crunch due to the subprime crisis. 
 
Going by the Percy Misty committee report on developing Mumbai as an international financial centre, the government is focussing on the bond, currency and derivatives markets. 
 
The Reserve Bank of India is in the process of issuing the final guidelines for trading in currency and interest rate futures.