Google Ad-sense is perfectly legal in India. You can surely receive payments in US dollars or any other currency as long as it comes from existing valid banking channels.
PAN is necessary when you have to file your income tax returns (and also for various other reasons like opening a bank account, etc.). It is not necessarily for receiving money from abroad. But even if you have low income, there are six crietrias. Its called
One by six scheme. If you fall under any one of them, you will have to file your return. These criterias are:
1. Mobile Phone
2. Credit Card
3. Club Membership
4. Foreign Travel
5. Owning a motor vehicle (not a two wheeler)
6. Occupying an immovable property as an owner or a tenant of specified area. Specified area differs from city to city.