PAN or ITR: What Are the Tax Obligations for Non-Resident Directors in India?

The Income‑Tax Act, 2025, which comes into force from 1 April 2026, replaces the old Income‑tax Act, 1961. While the new law broadly preserves India’s treaty framework, it introduces procedural changes and new compliance requirements for claiming DTAA benefits, most notably replacing Form 10F with Form 41 for non‑residents.

Indian Tax Compliance for Non-Resident Directors: PAN vs. ITR Obligations

With increased globalization, it is common for foreign individuals to serve as directors on the boards of Indian companies.

While such non-resident directors (NRDs) may not be physically present in India or actively involved in day-to-day operations, their association with an Indian entity creates important tax compliance obligations.

Two critical aspects of Indian tax compliance for such individuals are:

Obtaining a Permanent Account Number (PAN)
Filing an Income Tax Return (ITR)

These obligations may appear similar and misunderstanding the distinction often leads to either unnecessary compliance or inadvertent non-compliance.

This article examines the legal framework and practical implications surrounding PAN and ITR obligations for non-resident directors.

Residential Status and Its Relevance

Before analyzing compliance requirements, it is essential to determine the individual’s residential status under Section 6 of the Income-tax Act, 2025.

For non-resident directors, the most common Indian-sourced income is:

Director’s sitting fees
Commission
Remuneration
Reimbursement-based taxable benefits (in some cases)

Once such income arises, compliance obligations are triggered.

PAN Requirement for Non-Resident Directors

Legal Basis

Section 262 Rule 158 establishes the legal requirement to obtain and use a Permanent Account Number (PAN) if

Total income exceeds the basic exemption limit
Bring Director or Managing Director etc. of business which entered into specified financial transactions exceed ₹2,50,000 in a financial year.

Rule 158 provides the procedural framework for implementing Section 262:

Application Forms: PAN applications are filed using prescribed forms (Forms 93–96) based on applicant category.
Timelines: PAN must be applied for by 31 May following the financial year of relevant transactions.
Documentation: Proof of identity, address and date of birth is mandatory; non-residents may use foreign bank statements as address proof or as required.

Further, under Section 397, PAN becomes crucial for avoiding higher withholding tax rates.

Practical Scenarios for PAN Requirement

A non-resident director is required to obtain a PAN in the following situations:

Receipt of Director’s Fees

PAN helps ensure TDS is applied at the correct rate (including treaty rates) instead of the higher default rate (20%).

Treaty Benefits (DTAA Relief)

To claim Double Taxation Avoidance Agreement (DTAA) benefits, PAN is typically required along with TRC and other declarations.

Regulatory and Corporate Requirements

Indian companies usually require PAN for director onboarding and it facilitates TDS reporting and compliance under AIS and other filings.

Income Tax Return (ITR) Filing Obligations

Legal Framework for NRDs

Merely holding a PAN does not create a tax-filing obligation. A foreign director is obligated to file an ITR only if they meet any of certain criteria.

Section 263 of the Income-tax Act mandates filing of an ITR if:

Total Indian income exceeds the basic exemption limit (like director’s remuneration), or
Receive a salary, director’s sitting fees, or professional commissions from the Indian entity and want to claim a refund on taxes withheld (TDS)
The individual receives dividends, royalties, or technical fees from India and want to claim a lower tax rate using a DTAA, or
If the individual holds unlisted shares in an Indian company or own other taxable physical/financial assets in India.

Situations Where ITR May Not Be Required

A non-resident director may not need to file an ITR if:

Income is below the basic exemption limit
Entire tax liability is discharged through TDS
No refund is claimed
No other compliance triggers are applicable

PAN vs. ITR: Key Differences

Particulars	PAN	ITR Filing
Nature	Identification number	Annual compliance requirement
Purpose	Track financial transactions and taxes	Report income and compute tax liability
Trigger	Income, transactions or TDS provisions	Income threshold or refund claim
Mandatory for NRDs	Generally, yes if income earned	Depending on income level
Impact of non-compliance	Higher TDS (20%), compliance issues	Penalties, interest, inability to claim refund

Interplay Between PAN and TDS Provisions

Section 397 (Higher TDS Without PAN)

If PAN is not furnished:

TDS may be deducted at 20% or higher rate, even if DTAA provides a lower rate

Treaty vs. Domestic Law

Although judicial precedents indicate that DTAA provisions may override Section 397, in practice:

Diductors generally apply higher rates in absence of PAN.
Non-residents must file ITR to recover excess tax.

Best Practices for Non-Resident Directors

To ensure smooth compliance, NRDs should consider:

Obtain PAN

Apply upon appointment as director
Avoid higher withholding and administrative delays

Maintain Proper Documentation

Tax Residency Certificate (TRC)
Form 41
Agreement or board resolution outlining remuneration

Evaluate ITR Requirement Annually

Even if income is small:

Assess threshold
Determine if refund opportunity exists

Coordinate with Indian Company

Ensure correct TDS deduction
Verify Form 131/ TDS certificates
Cross-check Form 168

Conclusion

The distinction between PAN and ITR obligations is fundamental for non-resident directors engaged with Indian companies. While PAN serves as a foundational identification and compliance tool, it is often essential to avoid higher tax deductions, whereas ITR filing depends on income thresholds, refund claims and overall tax position.

In practice, due to the interplay of withholding tax provisions, treaty benefits and administrative procedures, most non-resident directors end up requiring both PAN and ITR compliance. Early planning, proper documentation and coordination with Indian tax advisors can significantly reduce compliance risks and optimize tax outcomes.

Get in touch with UJA Global Advisory today for personalized guidance on PAN registration, ITR filing, treaty benefit claims and end-to-end tax compliance support, so you can focus on your role, while we handle the compliance.