PAN and TAN for Businesses: The Essential Guide to Financial Compliance in India

Introduction 

Are you planning to start a new business venture in India? While it is an exciting journey and requires more than just a good idea and investment. To establish your business legally and develop a good rapport with clients and stakeholders, businesses need to adhere to financial rules and regulations set by the government. However, navigating through these legal requirements is a daunting task. 

Amongst all the financial compliance requirements for starting a business in India, obtaining a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) are the most prominent ones. Both PAN and TAN for businesses in India are issued by the Income Tax department, but serve entirely different purposes. However, it ensures that businesses comply with Indian taxation regulations while functioning efficiently.

Let us delve into TAN and PAN numbers, highlighting its importance, distinguishing features, and the application process to obtain them. 

What is a PAN Number?

Permanent Account Number (PAN) is a unique 10-character alphanumeric code issued by the Income Tax Department for businesses and salaried individuals under the Income Tax Act 1961. Using PAN is mandatory for tax-related and financial transactions. 

Example: BDFHJ9753S

The format of PAN is as below:

• The first five characters in PAN are alphabets 
• The next four are numbers
• And, the last one is alphabet again

However, each PAN card number is unique and keeps track of tax-related activities. 

Importance of PAN for Business in India

• Business Registration 

According to Indian Government norms, having a PAN card is mandatory to establish a business and for business registration, including LLPs and partnerships. In addition, your business should have a TRN, i.e., Tax Registration Number, to file tax returns. TRN can be obtained only if you possess a PAN card. 

Furthermore, startup organizations that complete the company registration process must acquire a PAN and a TAN number to ensure seamless compliance with business rules and regulations. 

• Opening a Bank Account 

In India, a current bank account can not be opened concerning to a business without having a PAN card. 

• Making High-Value Investments 

PAN number is essential to make high-value investments, like mutual funds, purchases, and property transactions exceeding certain limits. 

• Forex 

Any banking transactions involving foreign currency exchange are categorised into current account transactions. According to Foreign Exchange Management Act, getting a PAN number is crucial for selling/buying foreign currency up to Rs 50,000 or more. 

• GST Registration and Tax Compliance 

PAN card is mandatory for GST registration and filing income tax returns. It helps the Government of India to ensure that tax payers adhere to their tax obligations.

What is a TAN Number?

Tax Deduction and Collection Account Number (TAN) is a 10-digit unique alphanumeric number given by the Income Tax Department under Section 203A, Income Tax Act,1961.  And, this number is issued for collecting and deducting tax at the source, i.e. TDS(Tax Deducted at Source)/TCS(Tax Collected at Source).

TAN is essential for businesses to ensure that taxes are collected or deducted on payments and are deposited to the government to ensure smooth financial transactions. 

Example: ZXHY73459M

The format of TAN is as below:

• The first four characters in PAN are alphabets 
• The next four are numbers
• And, the last one is alphabet again

Therefore, the TAN number acts as a regulatory identity number for the purpose of tax deduction and collection.

Importance of TAN for Business in India

• Seamless TDS Processing 

TAN ensures TCS and TDS are tracked by the Income Tax department. It also enables processing of tax refunds quickly. 

• Streamlined Business Process

TAN streamlines tax deduction and collection process by providing access to a centralized system to track and report tax payments. 

• Avoid Penalties 

It’s not possible to file TDS returns without a TAN number and is considered to be invalid. Further, it leads to legal consequences, interests, and fines. 

• Prevents TDS Filing Rejection 

TDS filing without quoting a TAN number will be automatically rejected by the IT department. So here TAN number serve as a unique identity for TDS compliance and ensure to provide proper credit to the tax payers. 

Differences between PAN and TAN

Distinguishing Features	PAN	TAN
Abbreviation	Permanent Account Number	Tax Deduction and Collection Account Number
Who needs it	For all Tax Payers and businesses	Employers and businesses collecting or deducting tax, i.e., TDS/TCS
Issued by	Income Tax Department, India	Income Tax Department, India
Number Format	BDFHJ9753S- 10-character unique alphanumeric code	ZXHY73459M- 10-character unique alphanumeric code
Usage	GST registration, Filing Income Tax, open a business account, high-value transactions	Filing TDS/TCS returns
Non-compliance Penalty	Rs 10,000 for failing to get PAN/incorrect quoting of PAN	Rs 10,000 for failing to get TAN
Validity	PAN number has lifetime validity	TAN need to be renewed annually

How to Apply for PAN?

1. Visit the official website of National Securities Depository Limited (NSDL).
2. Complete Form 49 A if you are an Indian citizen or Form 49 AA if you are a foreign candidate who earns taxable income within India.
3. Submit relevant address proof/Identity proof.
4. Pay the application fee 
5. After verification, the PAN card will be issued as a physical card.

How to Apply for TAN?

1. Visit the official website of National Securities Depository Limited (NSDL).
2. Complete Form 49 B outlining business details 
3. Submit relevant business address proof and Identity proof
4. Pay the application processing fee 
5. After successful approval of application, TAN number will be issued.

Conclusion 

In India, having a PAN and TAN number is not merely a business identification number. It is essential to achieve financial compliance. Additionally, getting a TAN number ensures transparency in tax deduction and collection process, whereas a PAN number provides the identity to the business for taxation purposes. 

Depending on your organization type, acquiring a PAN and TAN number and utilizing them appropriately is required for establishing business credibility, ensures smooth business operations, and avoids paying penalties.