In the complex world of Indian taxation, businesses and individuals encounter several identifiers used by the Income Tax Department. Two of the most common and important ones are PAN and TAN. While they might seem similar, their purposes, functions, and applications are quite distinct.
If you are a business owner or planning to start one in India, understanding the difference between PAN and TAN is essential for compliance, tax filing, and smooth operations.
What is PAN (Permanent Account Number)?
PAN stands for Permanent Account Number. It is a unique 10-character alphanumeric identifier issued by the Income Tax Department to individuals, companies, firms, and other entities.
Purpose of PAN:
- To track all financial transactions related to tax payments and filings
- To prevent tax evasion by linking all financial activities to a single ID
- Required for filing Income Tax Returns (ITR)
- Mandatory for opening bank accounts, investing in securities, and purchasing high-value assets
Who Needs a PAN?
- Individuals with taxable income
- Businesses and companies
- HUFs (Hindu Undivided Families)
- Trusts, NGOs, and other entities
Format of PAN:
- Example: ABCDE1234F
- First five characters are letters, next four are numbers, and the last is a letter (check digit)
What is TAN (Tax Deduction and Collection Account Number)?
TAN stands for Tax Deduction and Collection Account Number. It is also a 10-character alphanumeric code issued by the Income Tax Department but specifically for entities responsible for deducting or collecting tax at source (TDS or TCS).
Purpose of TAN:
- To track TDS and TCS payments to the government
- Mandatory for entities deducting or collecting tax
- Helps in smooth credit of TDS to the deductee’s account
- Required for filing TDS/TCS returns
Who Needs a TAN?
- Employers deducting TDS on salary
- Businesses deducting TDS on payments like rent, commission, professional fees, contract payments
- Banks, financial institutions deducting TDS on interest payments
- Anyone required to deduct or collect tax at source
Format of TAN:
- Example: BLRP12345B
- First four letters represent city and entity name, followed by five digits and one letter (check digit)
Key Differences Between PAN and TAN
| Aspect | PAN (Permanent Account Number) | TAN (Tax Deduction and Collection Account Number) |
| Purpose | Identification of taxpayers for all tax-related transactions | Identification of entities responsible for deducting or collecting tax at source |
| Who Needs It? | Individuals, businesses, companies, HUFs, trusts | Employers, businesses, and entities deducting or collecting TDS/TCS |
| Use Case | Filing Income Tax Returns, investments, banking | Filing TDS/TCS returns, depositing TDS/TCS with government |
| Format | 10 alphanumeric characters (ABCDE1234F) | 10 alphanumeric characters (BLRP12345B) |
| Mandatory For | All taxpayers above exemption limit | Entities deducting/collecting tax at source |
| Governing Section | Income Tax Act, 1961 | Income Tax Act, 1961 (Section 203A for TAN) |
| Application Process | Online or offline through NSDL or UTIITSL | Online or offline through NSDL or UTIITSL |
| Penalty for Non-Compliance | ₹10,000 under Section 272B for non-possession | ₹10,000 under Section 272E for failure to obtain TAN |
Why Are PAN and TAN Both Important for Businesses?
For businesses, especially those that employ staff, make payments subject to TDS, or engage in financial transactions, both PAN and TAN are crucial identifiers.
PAN Importance:
- Used to file business income tax returns
- Required for GST registration and other regulatory processes
- Essential for opening current accounts and carrying out banking transactions
TAN Importance:
- Without TAN, businesses cannot deduct TDS or TCS legally
- Filing quarterly TDS returns is impossible without TAN
- TAN ensures proper credit of TDS to the recipients, avoiding tax disputes
How to Apply for PAN and TAN?
PAN Application:
- Available online on NSDL or UTIITSL portals
- Requires proof of identity, address, and date of birth (for individuals)
- PAN is issued within 15 working days after application
TAN Application:
- Also available online through NSDL or UTIITSL websites
- Requires basic business details and proof of registration/incorporation
- TAN is issued within 10 working days
Common Scenarios and Clarifications
Can an individual have TAN?
Generally, TAN is issued to entities deducting or collecting tax. Individuals do not need TAN unless they are responsible for TDS deductions, like employers.
Can PAN be used instead of TAN?
No. PAN identifies taxpayers, whereas TAN identifies entities deducting or collecting tax. Both serve different statutory purposes.
Is TAN linked to PAN?
Yes, TAN is linked to PAN of the deductor or deductee in Income Tax records, but they remain separate identification numbers.
Penalties for Non-Compliance
- Not possessing PAN when required can attract a penalty of ₹10,000 under Section 272B.
- Failure to obtain TAN when liable results in a penalty of ₹10,000 under Section 272E.
- Incorrect quoting of TAN or PAN in TDS/TCS returns can lead to disallowance of credit for TDS or other tax complications.
Summary Table: PAN vs TAN
| Parameter | PAN | TAN |
| Meaning | Permanent Account Number | Tax Deduction and Collection Account Number |
| Purpose | Taxpayer Identification | TDS/TCS Deductor Identification |
| Issued To | Individuals, businesses, entities | Deductors/collectors of tax |
| Required For | Tax filing, investments, banking | Filing TDS returns, depositing TDS/TCS |
| Governing Law | Income Tax Act, 1961 | Income Tax Act, 1961 |
| Format | 10-character alphanumeric | 10-character alphanumeric |
| Penalty for No PAN | ₹10,000 | N/A |
| Penalty for No TAN | N/A | ₹10,000 |
Conclusion
Both PAN and TAN are essential for the smooth functioning of businesses under the Indian tax regime. While PAN serves as a universal identification number for taxpayers, TAN specifically addresses entities responsible for deducting or collecting taxes at source.
For business owners, obtaining and correctly using both PAN and TAN is mandatory for compliance with tax laws, avoiding penalties, and ensuring smooth financial operations.
