The use of two essential identification numbers, such as the PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number), is crucial in India for taxation and compliance. Each of them is published by the Income Tax Department of India and is necessary to ensure that individuals and businesses can transact finances in a legal and transparent manner.
This blog will explain the meaning of PAN and TAN, their significance, online applications, and the major distinction between the two.
What is PAN (Permanent Account Number)?
PAN is shortened to mean Permanent Account Number, which is a 10-digit alphanumeric number that is issued by the Income Tax Department. It is a universal identification number that is used to monitor all the financial activities and tax-related activities of individuals and other entities.
For example: ABCDE1234F
NSDL (Protean eGov Technologies) or UTIITSL are the issuers of PAN and the PAN is valid in India throughout a lifetime. It aids the government in tracking the taxable financial transactions and avoiding tax evasion.
Structure of PAN Number
The PAN is designed in a given format with each character meaning something particular.
- The initial three letters are alphabetic and create a series.
- The fourth letter represents the nature of the entity, e.g. P (Individual), C (Company), H (HUF), A (Association of Persons), and T (Trust).
- The fifth letter will be the initial letter of the name of the holder, either surname or business name.
- These four characters are in the form of numbers and the final character is an alphabetic check code.
Importance of PAN Card
A PAN card is a mandatory identity card that enables transparency in financial dealings. It is mandatory for:
- Submission of Income Tax Returns (ITR).
- Opening bank accounts/ Demat accounts.
- Making loans, credit card applications and investment applications.
- Making high-value financial purchases, including the purchase of property or automobiles.
- Registration of a business or company.
- Making salary payments or professional payments.
In the absence of PAN, people and companies are not able to tax or implement significant financial transactions.
How to Apply for a PAN Card Online?
It is easy to apply for a PAN card, which can be done online.
Step 1: Go to the official NSDL e-Gov site (https://www.protean-tinpan.com) or UTIITSL site (https://www.pan.utiitsl.com).
Step 2: Select either Indian citizens or foreign applicants by selecting the Apply for New PAN.
Step 3: Complete your personal details or business details.
Step 4: Add documents like Aadhaar, address, and photograph.
Step 5: Pay the online processing fee.
Step 6: On submitting, you will be given an Acknowledgement Number to monitor your PAN.
Step 7: The e-PAN is immediately downloadable, and the physical card is sent to your registered address.
What is TAN (Tax Deduction and Collection Account Number)?
TAN is an acronym of Tax Deduction and Collection Account Number. It is a 10-digit alphanumeric code that is assigned to organisations that deduct or collect tax at the source (TDS/TCS).
For example: MUMC12345A
TAN is compulsory for any company, firm or government department that deducts TDS when paying salaries, rent, or contractor fees.
Importance of TAN Number
TAN provides sufficient deduction and deposition of taxes to the government. This is critical to the business that deals with the remuneration of employees or suppliers.
Key benefits of TAN include:
- Guarantees proper Tax Deduction at Source and Tax Collection at Source.
- Necessary to submit quarterly TDS returns.
- Used to produce Form 16, Form 16A and Form 27D.
- Assistance in keeping clean taxation records.
- Avoids fines and legal problems in case of non-compliance.
Entities are unable to deposit or declare TDS without a TAN, and this may lead to fines according to Section 272BB of the Income Tax Act.
How to Apply for TAN Online?
It is possible to apply for a TAN online at the NSDL TIN portal.
Step 1: Open the website; protean-tinpan.com/ tan.
Step 2: Select the option of applying online to receive TAN.
Step 3: Select the right category: company, firm, or individual.
Step 4: Complete your business and communication information on the form 49B.
Step 5: Pay the processing fee on the internet.
Step 6: You will be given a 15-digit sign of reference number to monitor your TAN application.
Step 7: On approval, the TAN allotment letter will be sent to your registered address.
Distinction between PAN and TAN
- Although both PAN and TAN are 10-digit alphanumeric numbers that are issued by the income tax department, they are totally different in purpose.
- PAN must be used in tracking the income and tax payments of individuals and entities. It is applied in the process of filing income tax returns, opening a bank account, or whenever engaging in financial transactions.
- TAN, in contrast, is only necessary for those entities that deduct or collect tax (TDS/TCS). It assists the government in monitoring TDS payments, deductions and returns paid by employers or organisations.
- When you are a personal taxpayer, you only require a PAN. However, when you are a payer of TDS, and you happen to be an employer, firm, or company, you must have both PAN and TAN.
The Importance of PAN and TAN to Businesses
PAN and TAN are essential for businesses to ensure compliance and transparency.
They help in:
- Submission of correct income tax returns and TDS returns.
- Evading fines and time wastage in tax procedures.
- Building relationships with clients, suppliers and banks.
- Paying employees and the vendors.
- Smooth audits and approvals of the expansion of the business.
Conclusion
Both PAN and TAN are integral components of the Indian tax system. Whereas PAN determines taxpayers and monitors activities related to income tax, TAN is required for organisations that deduct or collect tax at the point of origin.
All taxpayers, business owners, and organisations should ensure that their PAN and TAN are valid, updated, and applied correctly to all their financial transactions.
Compliance and understanding of these two identification numbers is not only a way to avoid punishment, but also to build trust and transparency in your financial matters.
