In India, obtaining a Tax Deduction and Collection Account Number (TAN) is mandatory for businesses and entities that are responsible for deducting or collecting Tax at Source (TDS/TCS). The TAN is issued by the Income Tax Department and serves as a unique identifier for tax-deducting entities. It is crucial to include the TAN in all TDS returns, certificates, and other income tax-related documents. Failing to do so may result in penalties.
What is TAN?
TAN, or Tax Deduction and Collection Account Number, is a 10-digit alphanumeric identifier issued by the Income Tax Department. It is used by individuals or organizations that are responsible for deducting or collecting tax at the source.
TAN Number Format and Structure
The TAN is structured as follows:
- First Four Characters (Alphabetic): Represent the jurisdiction where the TAN was issued.
- Middle Five Characters (Numeric): A unique system-generated number.
- Last Character (Alphabetic): A system-generated letter for added uniqueness.
This unique identifier ensures that tax deductions are correctly tracked and reported.
Who Should Obtain a TAN?
Entities and individuals who are required to deduct or collect tax at source must obtain a TAN. This includes:
- Tax Deducting Entities: Businesses or individuals who need to deduct TDS on payments such as salaries, contractor payments, rent payments (above Rs. 1.8 lakh annually), etc.
- Non-Profit Organizations: If a non-profit organization makes certain payments above specified thresholds, they must also have a TAN.
- Business Branches: Branches of companies involved in specified TDS-related payments.
- Salaried Individuals: Salaried individuals do not need to obtain a TAN unless they are also deducting tax at source in other capacities.
Importance of TAN
As per Section 203A of the Income-tax Act, 1961, any individual or entity responsible for deducting or collecting tax at source must obtain a TAN. The importance of TAN lies in its role in ensuring proper tax reporting and compliance. It must be mentioned in:
- TDS/TCS Returns and Statements: All returns filed for TDS or TCS must include the TAN.
- TDS/TCS Payments: TAN must be quoted when making payments to banks for TDS or TCS.
- TDS/TCS Certificates: When issuing tax certificates for deductions or collections.
- Other Income Tax Documents: Various forms and documents related to tax submissions must also include the TAN.
TAN Registration Process
The TAN registration process involves applying for a TAN through the Income Tax Department. Once registered, the entity or individual can legally deduct or collect tax at source and remit it to the government. Here’s why securing your TAN is essential:
- Mandatory for TDS Payments: The TAN is required when making TDS payments to banks. Without it, TDS payments will not be accepted.
- Lifetime Validity: Once obtained, a TAN is valid for life, meaning it doesn’t need to be renewed or re-applied.
- Mandatory for Sole Proprietors: Even individual business owners (sole proprietors) must obtain a TAN if they deduct tax at the source.
Key Features of TAN
- Lifetime Validity: TAN is valid for the life of the entity or individual. It doesn’t require periodic renewal.
- Mandatory for TDS: To make TDS payments, you must quote your TAN. Without it, TDS payments will not be processed by banks.
- Applicable to All Entities: Businesses of all sizes—whether sole proprietorships, partnerships, or companies—must obtain a TAN if they are liable for TDS.
- Unique Identifier: The TAN is a unique identifier, ensuring all tax deductions and collections are tracked accurately by the Income Tax Department.