The history of modern-day Indian gallantry awards can be traced back to the rule of the East India Company. Gold medals were awarded to Indian officers for the first time in 1795, with the first recipient being Subedar Abdul Kader of the Madras Native Infantry. The chain of the gold medal awarded to Kader was inscribed with the words "For Conduct and Courage on All Occasions". In 1834 the Order of Merit was established by the then-Governor-General of India, Lord William Bentinck. The decoration was renamed the Indian Order of Merit (IOM) in 1902, and Indians considered it to be "the most coveted gallantry award" until the Victoria Cross (VC)—the highest award for gallantry in the British Empire—was extended to Indians in 1911. The VC was awarded to 153 Indian and British soldiers of the British Indian Army, and civilians under its command, from 1857 until Indian independence in 1947.
During the First World War, in addition to the IOM, the awards system of the British Indian Army was expanded. Based on the British practice for recognising actions of gallantry, senior officers would be awarded the Distinguished Service Order, junior officers the Military Cross, and enlisted men with the Military Medal. This system continued through the Second World War.
Post-independence, the British honours and awards system in India informally came to an end. A short time later, Prime Minister of India Jawaharlal Nehru decided to give gallantry awards for the ongoing conflict in Jammu and Kashmir. Although India and Pakistan still had the option to award British honours, the leaders felt that it would not make sense to give the same honour to personnel from opposing forces. Accordingly, in June 1948 it was decided to institute new Indian awards for gallantry: the Param Vir Chakra (PVC), Maha Vir Chakra (MVC), and Vir Chakra (VrC). After the PVC, the MVC and VrC are the second and third highest gallantry awards during wartime.
Nehru entrusted the implementation of the PVC to Major General Hira Lal Atal, the first Indian adjutant general of India. He in turn requested Savitri Khanolkar, the wife of an Indian Army officer, Vikram Khanolkar of the Sikh Regiment, to design the medal for the PVC. Coincidentally, the first PVC would be awarded to Major Somnath Sharma, the brother-in-law of Khanolkar's daughter.
Despite gaining independence from British rule, India still remained a dominion of the United Kingdom. This meant that the Governor-General of India could not approve the establishment of the awards without assent from the British Crown. Therefore, a draft of the Royal Warrant was sent to London for approval by King George VI. However, by mid-1948 it became clear that the King's ratification would not be forthcoming for some time. As author Ian Cardozo suggests: "How could the King sanction awards for a war between two members of the Commonwealth? Also, the King would have not even a symbolic presence on the awards."
Therefore, the draft warrants to formally establish the new gallantry awards were not put into effect. On 1 January 1949, a ceasefire was implemented in Jammu and Kashmir, and as it was becoming too late to honour acts of heroism from the 1947–1948 Indo-Pakistani War, Nehru forwarded the draft warrants to Governor-General Chakravarti Rajagopalachari to "institute the awards as your own". But Rajagopalachari felt that, as India was still a dominion, it would be inappropriate for him to establish the awards without the King's approval. He instead suggested to Nehru that, as India was to become a republic on 26 January 1950, it would be appropriate to announce the establishment of the awards on that date, but with retroactive effect from 15 August 1947.
On 26 January 1950, now celebrated as Republic Day of India, the PVC was established by Rajendra Prasad, the first President of India, with effect from 15 August 1947 (Independence Day of India). Provision was made in the event a PVC recipient was to receive a further award of the medal; if this were to arise, the recipient would receive a bar to their existing PVC, along with a gift of a replica of the vajra (club), the weapon of Indra, the god of heaven. As of January 2018 , no instances of an individual being conferred with a second PVC have arisen. The medal carries with it the right to use "PVC" as a post-nominal.