PAN enables the department to link all transactions of the "person" with the department. These transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT, specified transactions, correspondence, and so on. PAN, thus, acts as an identifier for the "person" with the tax department. 

PAN was introduced to facilitates linking of various documents, including payment of taxes, assessment, tax demand, tax arrears etc. relating to an assessee, to facilitate easy retrieval of information and to facilitate matching of information relating to investment, raising of loans and other business activities of taxpayers collected through various sources, both internal as well as external, for detecting and combating tax evasion and widening of tax base.

It is mandatory to quote PAN on return of income, all correspondence with any income tax authority. From 1 January 2005 it has become mandatory to quote PAN on challans for any payments due to Income Tax Department.

It is also compulsory to quote PAN in all documents pertaining to the following financial transactions :-

1. sale or purchase of any immovable property valued at five lakh rupees or more;
2. sale or purchase of a motor vehicle or vehicle, [the sale or purchase of a motor vehicle or vehicle does not include two wheeled vehicles, inclusive of any detachable side-car having an extra wheel, attached to the motor vehicle;]
3. a time deposit, exceeding fifty thousand rupees, with a banking company;
4. a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank;
5. a contract of a value exceeding one lakh rupees for sale or purchase of securities;
6. opening a bank account;
7. making an application for installation of a telephone connection (including a cellular telephone connection);
8. payment to hotels and restaurants against their bills for an amount exceeding twenty-five thousand rupees at any one time;
9. payment in cash for purchase of bank drafts or pay orders or banker's cheques for an amount aggregating fifty thousand rupees or more during any one day;
10. deposit in cash aggregating fifty thousand rupees or more with a bank during any one day;
11. payment in cash in connection with travel to any foreign country of an amount exceeding twenty-five thousand rupees at any one time;
12. making an application for issue of credit card or debit card;
13. payment of an amount of fifty thousand rupees or more to a Mutual Fund for purchase of its units;
14. payment of an amount of fifty thousand rupees or more to a company for acquiring shares issued by it;
15. payment of an amount of fifty thousand rupees or more to a company or an institution for acquiring debentures or bonds issued by it;
16. payment of an amount of fifty thousand rupees or more to the Reserve Bank of India;
17. payment of an amount aggregating fifty thousand rupees or more in a year as life insurance premium to an insurer;
18. payment to a dealer,
    1. of an amount of five lakh rupees or more at any one time; or
    2. against, a bill for an amount of five lakh rupees or more,
    3. for purchase of bullion or jewellery

Mandatory Documents Required:

1. Identity Proof ( Aadhar Card/ Voter ID Card/ Driving License/ Passport/ Ration Card/ Arm's License/  Photo identity card issued by the Central Government or State Government or Public Sector Undertaking/ Pensioner card having photograph of the applicant/ Central Government Health Scheme Card or Ex-Servicemen Contributory Health Scheme photo card/ Certificate of identity in Original signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councilor or a Gazetted officer, as the case may be/ Bank certificate in Original on letter head from the branch alongwith name and stamp of the issuing officer containing duly attested photograph and bank account number of the applicant)
2. Address Proof ( Aadhar Card/ Voter ID Card/ Driving License/ Passport/ Passport of the spouse/ Post office passbook having address of the applicant/ Latest property tax assessment order/ Domicile certificate issued by the Government/ Allotment letter of accommodation issued by the Central Government or State Government of not more than three years old/ Property Registration Document/  Copy of following documents of not more than three months old :- (a) Electricity Bill; or (b) Landline Telephone or Broadband connection bill; or (c) Water Bill; or (d) Consumer gas connection card or book or piped gas bill; or (e) Bank account statement or as per Note 2 ; or (f) Depository account statement; or (g) Credit card statement/ Certificate of address signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councilor or a Gazetted officer, as the case may be/ Employer certificate in original)
3. Date of Birth Proof ( Aadhar Card/ Voter ID Card/ Driving License/ Passport/ Matriculation certificate or Mark sheet of recognized board/ Birth certificate issued by the municipal authority or any office authorised to issue birth and death certificate by the Registrar of Birth and Deaths or the Indian Consulate as defined in clause (d) of sub-section (1) of section 2 of the Citizenship Act, 1955 (57 of 1955)/ Photo identity card issued by the Central Government or State Government or Central Public Sector Undertaking or State Public Sector Undertaking/ Domicile certificate issued by the Government/  Central Government Health Service Scheme photo card or Ex-servicemen Contributory Health Scheme photo card/  Pension payment order/ Marriage certificate issued by the Registrar of Marriages/ Affidavit sworn before a magistrate stating the date of birth)
4. PAN - Company having Office of their Own in India: Copy of certificate of registration issued by Registrar of Companies
5. PAN - Partnership Firm having Office of their Own in India: Copy of certificate of registration issued by Registrar of firms or Copy of Partnership Deed
6. PAN - Limited Liability Partnership having Office of their Own in India: Copy of Certificate of Registration issued by the Registrar of LLPs
7. PAN - Association of Persons (Trust) having Office of their Own in India: Copy of trust deed or copy of certificate of registration number issued by Charity Commissioner
8. PAN - Association of Person, Body of Individuals, Local Authority, or Artificial Juridical Person having Office of their Own in India: Copy of Agreement or copy of certificate of registration number issued by charity commissioner or registrar of cooperative society or any other competent authority or any other document originating from any Central or State Government Department establishing identity and address of such person.
9. PAN - Company/Firms/Limited Liability Partnership/AOP (Trusts)/AOP/ BOI/Local Authority/Artificial Juridical Person NOT having Office of their Own in India: 
   1. Copy of Certificate of Registration issued in the country where the applicant is located, duly attested by “Apostille” (in respect of the countries which are signatories to the Hague Convention of 1961) or by the Indian Embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India.
   2. Copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
10. Fees - Rs. 500+ Government Charges Extra.