Panful experience

09-Oct-2011
Source : Financial Express

By Saikat Neogi,
After banks — which made it mandatory to mention the permanent account number (PAN) for cash deposits above Rs.50,000 — insurance companies will have to ensure that customers furnish their PAN for premium deposits in cash above Rs.50,000 during any one day. This has been made mandatory to eliminate the threat of money laundering and terrorist financing vulnerabilities in the insurance sector.
A recent circular by the insurance regulator, the Insurance Regulatory and Development Authority (Irda), says that, to ensure that the premiums are paid out of clearly identifiable sources of funds, in case of deposit remittances in cash above Rs.50,000 per transaction, the customer will have to quote the PAN number. The insurance company will accept the cash only after verifying the authenticity of the details of the PAN. If a customer doesn’t have a PAN or has only agricultural income, the insurance company will make it mandatory for him or her to fill Form 60/61 prescribed under the provisions of income-tax rules.
Form 60 is a declaration to be filed by a person who does not have a PAN and who enters into any transaction specified in rule 114B, which includes sale or purchase of immovable property valued at Rs.5 lakh or more, sale or purchase of a motor vehicle, time deposit of more than Rs.50,000, opening a bank account and getting a telephone connection, among others.
In Form 60, investors have to fill in details like name, address, transaction details, etc. If the person is assessed to tax, the details of the last return filed will have to be mentioned. A list of documents like proof of residence, which includes ration card, passport, driving licence, electricity bill or telephone bill, document or communication issued by the central government, state government or a local authority or any identity card issued by an institution will have to be attached with the form.
Form 61 is a declaration to be filed by a person who has agricultural income and does not receive any other income chargeable to income tax in respect of transaction specified in clauses (a) to (h) of rule 114B1.
Though Irda does not specify how much penalty will be imposed on the customer if she do not give the PAN for premium payment in cash above R50,000, under the Section 272B of the Income Tax Act, 1961, a penalty of R10,000 could be levied on the individual for failure to comply with the provisions of Section 139A of the Act.
The insurance regulator has also underlined that cash transaction above R10 lakh and integrally connected cash transaction above R10 lakh per month will have to be reported to the Financial Intelligence Unit-India (FIU-IND), the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs. The report has to be submitted to FIU-IND by the 15th of the succeeding month.
Irda has clearly informed insurers to lay down a proper mechanism to check any kind of attempts to avoid disclosure of PAN details, and if there is any possible attempt to circumvent the requirements, it will be reviewed from the angle of suspicious activities and reported to FIU-IND.
To bring in transparency in the payout stage, the regulator has now made it mandatory that no payments should be allowed to third parties, except in cases like superannuation or gratuity accumulations and payments to legal heirs in the case of death benefits. Payments in all these cases will be made after due verification of the bona fide beneficiary and payments above R10,000 per claim will have to be made through account payee cheque or electronic transfers like Electronic Clearing Services or the National Electronic Fund Transfer.
Both these norms will come into effect from November 1, 2011, and industry experts say they are in the right direction for customer safety and security. The Irda note says that the insurance sector has entered into the sixth year of anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.
“The extant AML/CFT guidelines to the insurance sector are being reviewed to access the need for changes to facilitate a risk-based approach. Due consideration is placed on the threats posed by the money laundering/terrorist financing vulnerabilities in the insurance sector,” says the Irda note.
Globally, new measures are being introduced and existing measures tightened to combat money laundering and the financing of terrorism. In India, the amendments in the Prevention of Money Laundering Act, 2002 (PMLA), enacted in February 2009, were brought into force with effect from June 1, 2009.
To further strengthen the AML/CFT regime, the rules issued under PMLA have been amended three times since then. In financial year 2009-10, FIU-IND witnessed a substantial increase in the number of reports received by it as the number of cash transaction reports increased from 55,11,150 in the previous financial year to 66,94,404 in 2009-10, and the number of suspicious transaction reports received went up from 4,409 to 10,067 in 2009-10.