What TAN Is
Chapter Ten
Syllabus topic 3, "PAN & TAN application for business Under The Income Tax Act, 1961."
Pages 20 to 21 of 80
In one line
Tax Deduction and Collection Account Number is the number under which a person who deducts or collects tax at source accounts for it, and it is not the same thing as PAN.
The provision
Section 397(1) of the Income-tax Act 2025:
(a) Every person deducting or collecting tax shall apply for allotment of a tax deduction and collection account number to the Assessing Officer within such time as may be prescribed, if that person has not already been allotted such number;
(b) where a tax deduction and collection account number has been allotted to a person, such person shall quote such number in all challans, statements, certificates referred to in this Chapter, and in all documents pertaining to such transactions as may be prescribed in the interests of revenue;
Two duties: apply for it, and quote it.
Who must have one
Anybody who deducts or collects tax at source. That is the whole test, and it catches far more people than a first reading suggests. A partnership firm needs a TAN as soon as it does any of these:
- pays salary above the exemption limit to any employee;
- pays rent above the prescribed limit;
- pays a contractor or a professional above the prescribed limits;
- pays interest other than on a bank deposit;
- pays commission or brokerage;
- collects tax at source on the sales the Act requires it on.
A firm with no employees and no such payments needs no TAN. A firm that hires its first employee on a taxable salary needs one immediately.
The four cases in which the requirement does not apply
Section 397(1)(c) takes four classes out of the duty in clause (a):
(i) a person in respect of a transaction where he is required to deduct tax under section 393(1) [Table: Sl. No. 2(i), 3(i) or 6(ii)]; or
(ii) a person referred to in section 393(4) [Table: Sl. No. 12.C(a)] in respect of a transaction where he is required to deduct tax on consideration for transfer of a virtual digital asset under section 393(1) [Table: Sl. No. 8(vi)]; or
(iii) a resident individual or Hindu undivided family in respect of a transaction where he is required to deduct tax on any consideration for the transfer of any immovable property under section 393(2) [Table: Sl. No. 17]; or
(iv) a person notified in this regard by the Central Government.
Case (iii) is the one an ordinary person meets. An individual buying a flat has to deduct tax on the price, and he does it against his PAN, not against a TAN. That is why nobody buying a house is asked to obtain one.
What TAN Is
The consequence of not having a PAN, which sits in the same section
Section 397(2)(a) requires every person entitled to receive an amount on which tax is deductible, or paying an amount on which tax is collectible, to furnish a valid Permanent Account Number to the person deducting or collecting.
Section 397(2)(b) then provides that on failure the tax shall be deducted at the higher of the rate specified in the relevant provision of the Act or the other rates the section prescribes.
So the deductee's PAN and the deductor's TAN are both required, and the penalty for a missing PAN falls on the deductee in the form of a higher rate.
PAN and TAN compared
This table is the answer to the commonest question on this topic.
| PAN | TAN | |
|---|---|---|
| Stands for | Permanent Account Number | Tax Deduction and Collection Account Number |
| Provision | Section 262 | Section 397(1) |
| Characters | Ten, five letters, four digits, one letter | Ten, four letters, five digits, one letter |
| Held by | Every person meeting section 262(1) | Only a person who deducts or collects tax at source |
| Purpose | Identifies the taxpayer | Identifies the deductor |
| Application form | 49A or 49AA | 49B |
| Quoted in | Returns, correspondence, challans | TDS challans, TDS returns, TDS certificates |
| How many may be held | One only, section 262(8) | One per deductor, though a large organisation may hold one per branch |
| Can one be used for the other? | No, except in the cases section 397(1)(c) names | No |
The structure tells them apart at a glance. A PAN reads AAAPB1234C, five letters then four digits. A TAN reads MUMA12345B, four letters then five digits, and the first three letters are the city code, so a TAN beginning MUM was allotted in Mumbai.
The penalty
A person who fails to apply for a TAN when required, or fails to quote it where the Act requires, is liable to a penalty. More practically, the return of tax deducted at source cannot be filed without one, and the failure to file that return carries its own fee and its own penalty, and it stops the deductee from getting credit for the tax that was deducted from them.
That last consequence is the one to name in an answer. A firm without a TAN does not merely inconvenience itself; it leaves its employees unable to claim the tax already taken out of their salaries.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.