TAN : Full Form, Uses, Examples and Benefits

What is TAN?

TAN is defined as a 10-digit alphanumeric number provided by India’s Income Tax Department to entities that have to deduct or collect tax on payments made by them. All TDS/TCS returns, challans, and correspondence with the Income Tax Department must include the deductors’ and collectors’ TAN. It acts as the entity’s unique identification number and assists the department in keeping track of tax deductions and collections. TAN is required for individuals who are liable for deducting tax at source (TDS) on salary, interest, dividends, and other payments stated by the Income Tax Department. Persons responsible for collecting tax at source (TCS) on specific transactions as stipulated by the government must also have TAN.

Form 49B can be obtained from any authorised TIN (Tax Information Network) facilitation center or NSDL (National Securities Depository Limited) e-Gov TIN-FC. The Income Tax Department allotted TAN and communicated to the applicant once the application was processed.

Full-Form of TAN

TAN stands for Tax Deduction & Collection Account Number. TAN is a unique identification number used for checking these tax deductions & collections ensuring people’s compliance with tax regulations. TAN enables accurate & transparent tax reporting and payment. It is illegal for individuals or entities to hold or use more than one TAN.

Who is Allowed to Apply for TAN?

Every individual who is obligated to deduct and collect income tax on behalf of the Income-tax authorities must apply for TAN. Furthermore, TAN must be included in every TDS/TCS return, TDS/TCS payment challan, certificate to be issued and so on. Failure to apply for TAN may result in the imposition of a penalty. Persons liable to deduct or collect tax at source must get a TAN from the Income Tax Department. There are, however, exceptions to this rule. These are the following:

1. Persons deducting tax under section 194-IA of the Income Tax Act can use their PAN instead of their TAN because TAN is not required.

2. Persons deducting taxes under sections 194-IB or 194-M do not need to get TAN.

How to Apply for TAN?

Everyone is required to deduct and collect taxes on the government’s behalf. As a result, applying for a TAN is required, however the question of how to apply arises. An individual may apply for TAN either online or offline. It is simple and anyone can get their TAN number by following the procedures below.

1. TAN numbers are allotted by income tax authorities. In the case of an online application, an applicant must complete 49B online and submit it together with the application nominal fees. In the event of an offline application, the applicant for allotment of TAN must file form 49B and send it to any of the TIN Facilitation Centres.

2. The application form can also be submitted online. An applicant will be allotted TAN after filing an application and submitting it at a facilitation centre, subject to the condition that there are no errors in the application. After you apply, it will generate an acknowledgment number. This number can be tracked on the income-tax website.

Structure of TAN

The TAN Number is made up of both alphabets and digits. TAN’s first four characters are alphabets. The following five letters are numbers, while the last character is an alphabet. Thus,

1. The Jurisdiction Code is represented by the first three characters of the TAN.

2. The fourth character is an alphabet that represents the first letter of the TAN holder’s name, which might be a corporation, a firm, an individual, etc.

3. The next five characters are system-generated numbers.

4. The last character is also a system-generated alphabet.

For example : Suppose TAN is allotted to Mr. Arun Sharma of Delhi. In this situation, the TAN would look like this: DEL A 67890 B.

Advantages of TAN

1. Legal Compliance: The TAN number, in and of itself, provides no benefits to the assessee other than the ability to escape the file by complying with a legal obligation. According to the provisions of the Income Tax Act of 1961, everybody responsible for deducting or collecting tax at source must get a TAN number. Failure to get a TAN number or offering an incorrect TAN number can lead to fines and legal consequences.

2. Tax Deduction and Collection: It is also known as TDCAN, and it sorts, identifies, and matches the number of TDS. TCS deducts, collects, and provide necessary credits to the individual whose income tax liability TDS/TCS deducts. The TAN number is used to identify the person or business that deducted or collected tax at the point of collection and deposited the money to the government’s account. The TAN number is also used for issuing TDS certificates to those from whom tax has deducted.

3. Tax Payments: TAN offers benefits to income tax authorities for tax collection at the moment when income becomes accrued.

4. Avoidance of Fraud: TAN number helps in the reduction of TDS deduction and collection fraud. It ensures that only authorised individuals or companies deduct and collect taxes.

Uses of TAN

The primary usage is listed beneath the benefits. Its objective is to collect tax as soon as a taxpayer’s income is generated or earned. However, a taxpayer may claim the following as part of legal compliance:

1. To Claim Tax Deductions and Credits: When making any payments as stated by the Income-tax Act, where the service receiver is required to deduct TDS, such as salary, commission, rent, winnings from lotteries, etc. TDS is deducted on behalf of the government and deposited into a government account. To match amounts while they are being evaluated, that amount must be reported under TAN.

2. To Make Tax Payments: Any payment challan for TDS deducted or TCS collected must include the TAN number otherwise, the payment challan would be considered illegitimate.

3. To Claim Refunds: When submitting returns, it is mandatory to provide the TAN number.

4. To Communicate with the Tax Department: In addition, while issuing TDS, the TCS certificate assessee must specify the TAN number. Otherwise, the same may be considered non-compliant and hence invalid.

5. To Track Tax Compliance: It keeps track of the address of the person who deducted TDS on behalf of the IT department. It also captures the PIN, which is recorded with the department.

Difference Between TAN and PAN

Basis	TAN	PAN
Meaning	The income-tax authorities allotted a unique 10-digit alphanumeric number to each individual who is obligated to deduct TDS or collect TCS.	PAN, on the other hand, is a ten-digit alphanumeric 10-digit number allotted by the income-tax authorities to each assessee in order to uniquely identify them.
Purpose	TAN is an additional burden placed on the shoulders of an assessee.	PAN can be defined as a unique identifying number assigned to any assessee who is required to or voluntarily chooses PAN.
Holder	Every assessee having TAN is required to have PAN	Every assessee with a PAN may or may not have a TAN.
Required by	Individuals and businesses must pay tax at the source.	It is required by Every taxpayer .

Conclusion

The ten-digit alphanumeric number allotted by the income tax authority to collect, deduct, and deposit tax on behalf of another individual to the income-tax authorities is known as the TAN. In the case of applicability, a person must apply for TAN and then follow all of the legal conditions outlined in the Income-tax Act. If a person fails to comply with the provisions, the authorities may open a file against them. When making any TDS/TCS filings, the individual holding the TAN must quote the TAN in all communication otherwise, it may be considered invalid.