What Is TAN?

What is a TAN?

TAN (Tax Deduction and Collection Account Number) is a unique 10-character alphanumeric identifier assigned to individuals and entities responsible for deducting (TDS) or collecting (TCS) taxes on behalf of the government.

For example, when an employer deducts TDS from an employee’s salary, they must deposit it using a TAN. Similarly, businesses collecting tax at source (TCS) need a TAN to deposit and report collections.

A valid TAN is required for:

• Filing TDS/TCS returns
• Depositing deducted taxes with the government
• Issuing TDS/TCS certificates to employees, vendors, or contractors
• Avoiding penalties for non-compliance
   

Why is TAN Important?

A TAN plays an important role in the Indian taxation system. Here’s why it is essential:

1. Legal Requirement: Every entity deducting or collecting tax must have a TAN, as mandated by the Income Tax Act, 1961.
2. Enables TDS/TCS Deposits: Without a TAN, businesses cannot deposit deducted or collected taxes to the government.
3. Filing TDS/TCS Returns: TAN is necessary for filing quarterly TDS and TCS returns and issuing certificates (Form 16, Form 16A, etc.).
4. Avoids Penalties: Failure to obtain a TAN when required can result in penalties under Section 272BB of the Income Tax Act.
5. Facilitates Smooth Transactions: With a TAN, businesses ensure compliance, avoid legal issues, and build trust with employees, vendors, and tax authorities.
    

Structure of TAN: How is it Formed?

A TAN is a 10-character alphanumeric code, structured as follows:

Example: MUMT12345L

• First 3 letters – Represent the city/state of the applicant (e.g., MUM for Mumbai).
• Fourth letter – The initial letter of the applicant’s name (e.g., "T" for Tata Ltd.).
• Next 5 digits – Unique system-generated numbers.
• Last letter – A randomly generated alphabetic check digit.

Every TAN is unique and helps the Income Tax Department track TDS/TCS transactions.
 

Who Needs a TAN?

TAN is required by:

1. Employers deducting TDS on salaries, payments to contractors, professionals, rent, interest, etc.
2. Businesses collecting TCS on specific goods/services.
3. Banks deducting TDS on fixed deposit (FD) interest.
4. E-commerce platforms deducting TDS on seller payments under Section 194O.
5. Freelancers and consultants (if liable to deduct TDS).

Who does NOT need a TAN?

• Individuals filing personal income tax returns without any TDS responsibility.
• Salaried employees, as TDS is deducted by their employers.
   

How to Apply for a TAN in India?

Applying for a TAN is a simple online and offline process.

1. Online Application

• Step 1: Visit the NSDL e-Gov website (www.tin-nsdl.com).
• Step 2: Select “TAN Application (Form 49B)”.
• Step 3: Choose “Category of Deductor” (e.g., individual, company, partnership, government, etc.).
• Step 4: Fill in business details, including name, address, PAN, and contact details.
• Step 5: Pay the processing fee of ₹65 (plus GST) via credit card, debit card, net banking, or demand draft.
• Step 6: Submit the application and note down the acknowledgment number.
• Step 7: Send the signed acknowledgment receipt to NSDL’s Pune office for verification.
• Step 8: Once verified, TAN will be issued within 7-15 days and sent to the registered address.

2. Offline Application

• Download Form 49B from the NSDL website.
• Fill in the details manually and submit the form at a TIN Facilitation Centre along with the processing fee.
• Receive an acknowledgment receipt and track the application status online.
   

How to Verify a TAN?

You can verify an existing TAN online:

1. Visit the Income Tax e-Filing portal (www.incometaxindiaefiling.gov.in).
2. Click on “Know Your TAN” under Quick Links.
3. Enter the required details and verify the TAN status.

Why verify TAN?

• To check if a TAN is active before filing TDS/TCS returns.
• To ensure correct reporting in financial documents.
   

Penalty for Non-Compliance

Non-compliance with TAN regulations can lead to penalties under Section 272BB of the Income Tax Act:

• Failure to obtain TAN: ₹10,000 penalty.
• Failure to quote TAN: ₹10,000 penalty for incorrect TAN on TDS/TCS returns.
• Incorrect TAN on documents: May lead to rejection of TDS/TCS filings.

To avoid penalties, businesses and individuals responsible for TDS/TCS must apply for and use TAN correctly.
 

Difference Between TAN and PAN

Conclusion

A Tax Deduction and Collection Account Number (TAN) is an essential requirement for businesses, employers, and entities deducting or collecting tax at source. Without a TAN, businesses cannot deposit TDS/TCS, file returns, or issue TDS certificates, leading to penalties.

By understanding what TAN is, who needs it, how to apply, and compliance requirements, taxpayers can ensure smooth tax compliance and avoid unnecessary fines.

For businesses handling TDS or TCS, obtaining and using TAN correctly is a legal necessity, making it crucial to stay updated with the latest tax regulations.