Tax deduction and collection Account Number, or TAN, is a ten-digit alphanumeric code issued by the Income Tax Department of the Government of India. Entrepreneurs starting their own businesses are mandatorily required to apply for their TAN number as it helps obtain and compile data regarding tax deducted at source (TDS) and tax collected at source (TCS). It is necessary to mention the TAN number on all challans made towards TDS or TCS payments; otherwise the taxpayer can attract penalties for incorrect representation.
Who should apply for TAN?
Any individuals or business owners who are liable to tax deducted at source or tax collected at source are required to apply and obtain TAN. TAN number full form indicates to its use; however, there are some exemptions for individuals and businesses that fall under certain category mentioned under the Income Tax Act. Let’s take a look at everything one needs to know about TAN.
- Individuals who need to deduct tax under Section 194-IA can use PAN card instead of TAN. They are not required to obtain TAN as long as their business revenue stays under a predetermined threshold.
- Similarly, individuals required to deduct tax under Section 194-IB or Section 194M are also not required to obtain TAN.
Section 194-IB includes individuals who pay rent for any land or building (or both) in an amount exceeding Rs. 50,000 every month. They are liable to deduct tax at a flat slab of 5%.
Section 194M includes individuals who pay more than Rs. 50 Lakh annually for residence, on account of contractual work, brokerage, or professional fees. They too are liable for a flat tax deduction of 5% from the paid sum.
TAN helps build good financial habits to manage business growth as it allows a company owner to stay ahead of his or her taxes, ensuring they obey by the rules. A taxpayer will also have to submit the details of TAN if they want to calculate TDS on loan repayments. It is applicable for both secured and unsecured credits borrowed from NBFCs or government backed financial institutions alike.
Structure of TAN
TAN consists of 10 alpha-numeric characters, first four letters, followed by five digits, and concluded by an alphabet. The first three letters represent the code of the jurisdiction that an individual or company resides. The fourth alphabet is the initial of that TAN holder’s or company’s name. Next five numeric digits and the last alphabet is a serial number allocated by the Income Tax Department of India.
Benefits of TAN
After the introduction of GST, it had become necessary to implement a unified and simple system to consolidate all the information. There are several reasons why GST is beneficial, especially regarding input credit where a taxpayer earns credit against TDS and TCS paid. TAN helps collect and process the information under one umbrella.
TAN is used for deductions such as Salary, interest, dividends, etc. A taxpayer must submit their ten-digit TAN, along with name and address of each Challan type 281 used for depositing tax. It acts as a unique identification number for those who are deducting or collecting taxes at source on behalf of Income Tax Department and will be required to make GST payment online.
An applicant can follow either online or offline application process to apply and avail the TAN. In offline mode, the application has to be filed in Form 49B and submitted to any TIM-FC. Online applicants can complete the process at the official website of NSDL-TIN. They will have to apply by sharing some essential details, after which they will be allocated an acknowledgement number, TAN status, payment details, and space for a signature.
After acknowledging all the clauses and signing the accompanying boxes, the applicant can submit their form for further processing. He or she will also have to submit a total of Rs. 65 as a processing fee after the successful submission process. The payment can be made via demand draft, cheque, credit card or debit card, and net banking