A Tax Deduction and Collection Account Number (TAN) is required for any person or entity liable for deducting or collecting tax at source under the Income Tax Act. Partnership firms often ask – is there a specific turnover limit for TAN registration, or does every firm need a TAN regardless of turnover?
This blog clears the confusion by explaining when TAN is mandatory for partnership firms, whether turnover matters, and what the law says about TDS obligations.
Introduction
When a partnership firm starts operations and begins making payments like salaries, rent, contract fees, or professional charges, it has to comply with various tax rules. One key requirement is obtaining a TAN, which is a 10-digit alphanumeric number that is issued by the Income Tax Department for TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) compliance.
Many small or new firms assume that TAN is only required once their turnover crosses a certain threshold.
What is TAN?
TAN (Tax Deduction and Collection Account Number) is a unique number that identifies entities responsible for deducting or collecting taxes at source. The law requires that any person or business making specified payments where tax is deductible at source must first obtain a TAN and quote it in –
- TDS returns
- TDS certificates (Form 16, Form 16A)
- TDS challans
- TDS-related correspondence with the Income Tax Department
Without a TAN, you cannot deposit TDS or file TDS returns, and failure to do so may attract penalties.
Is There a Turnover Limit for TAN Registration?
The short and clear answer is – No, there is no turnover limit for TAN registration.
TAN is not linked to how much turnover or revenue your partnership firm generates. Instead, TAN is mandatory as soon as –
- The firm makes a payment where TDS is applicable under the Income Tax Act.
It doesn’t matter whether your firm’s turnover is Rs 1 lakh, Rs 10 lakh, or Rs 1 crore. What matters is the nature of the payments you make, not how much you sell or earn.
When Does a Partnership Firm Need to Apply for TAN?
Your firm must apply for TAN if it makes any payment that attracts TDS. Some common examples include –
- Payment of salary exceeding the basic exemption limit – TDS under Section 192
- Payment of rent exceeding Rs 2,40,000 per annum – TDS under Section 194I
- Contract payments exceeding Rs 30,000 (single payment) or Rs 1,00,000 (aggregate annual) – TDS under Section 194C
- Payment of professional fees exceeding Rs 30,000 per annum – TDS under Section 194J
- Payment of interest (other than interest on securities) over Rs 5,000 – TDS under Section 194A
Even if your turnover is low, the moment you make any of these payments at or above the specified limits, your firm is responsible for deducting TDS and thus must obtain a TAN.
What if a Firm Does not have a TAN But Deducts TDS?
If your firm deducts TDS without a TAN –
- You cannot deposit TDS with the government (challans require TAN)
- You cannot issue valid TDS certificates
- You will face the penalties under Section 272BB (Rs 10,000 for failure to obtain TAN)
- TDS returns cannot be filed, leading to further fines and disallowance of expenses
Note – If your firm does not deduct the TDS when required, the expense may be disallowed under Section 40(a)(ia) while computing taxable income.
Key Points for Firms to Remember
- TAN is transaction-based, not turnover-based. Even a small firm may need TAN if it makes a payment requiring TDS.
- Apply for TAN proactively, ideally before making the first payment where TDS applies.
- Failure to comply may result in penalties for not deducting TDS, not obtaining TAN, or late filing of TDS returns.
- TAN is permanent – once it is allotted, the same TAN is used throughout the life of the firm (unless there is a structural change).
Common Misconceptions about TAN
- “TAN is needed only if turnover crosses Rs 1 crore or Rs 10 lakh.”
Incorrect. There is no turnover threshold. It is based on the type of payments made.
- “TAN is optional for small businesses.”
No. TAN is mandatory the moment your firm makes a payment liable for TDS.
- “You can use the PAN of the firm instead of TAN for TDS.”
No. PAN is for income tax; TAN is compulsory for TDS matters.
Conclusion
There is no turnover limit for TAN registration for partnership firms. If your firm makes any payment that requires tax deduction at source under the Income Tax Act, you must apply for a TAN, no matter how small or large your business turnover is.
The key takeaway is – focus not on turnover, but on your payment obligations under TDS law. Early TAN registration ensures smooth compliance, avoids penalties, and builds credibility for your firm.
References
The Income-Tax Act, 1961 (Act No. 43 of 1961)
The Income Tax Rules, 1962
