tarting a new business in India is an exciting journey, filled with opportunities for growth and innovation. However, alongside the excitement comes the critical responsibility of adhering to financial and tax compliance requirements established by the government.
The Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) are two essential components for any organization to maintain compliance and establish reputation in the financial ecosystem. This article offers a thorough explanation of PAN and TAN, their significance, and how companies can incorporate them into their operations with ease.
What is Pan?
The Income Tax Department issues a unique 10-character alphanumeric identifier known as the Permanent Account Number (PAN). It serves as a means of identification for people and companies doing business in India.
PAN’s objective:
acts as a special identification for financial transactions.
required for creating company bank accounts, completing high-value transactions, and filing income tax reports.
How New Businesses Gain from PAN:
Simplifies Tax Compliance: It gets easier to manage GST-related procedures and file income tax returns.
Establishes Credibility: PAN registration shows financial legitimacy, which engenders confidence in stakeholders, clients, and vendors.
An example of how a PAN is used is when a company buys real estate or makes a single payment of more than ₹50,000. This requires the PAN to be filed for tax monitoring purposes.
What is it TAN?
The Income Tax Department assigns a 10-digit alphanumeric code known as the Tax Deduction and Collection Account Number (TAN) to organizations in charge of withholding taxes at the source (TDS/TCS).
TAN’s objective:
identifies companies that are permitted by income tax laws to deduct or collect taxes at the source.
guarantees that TDS and TCS are sent to the government on time.
TAN’s Significance to Businesses:
Assures Compliance: Meets legal requirements under TDS/TCS regulations.
Avoids Penalties: Avoids fines that would otherwise be imposed for noncompliance.
An illustration of how to use TAN:
Businesses must file TDS statements, which necessitate a valid TAN, when they deduct tax from employee salaries.
Important Distinctions Between PAN and TAN Types PAN TAN ?
ObjectiveDetermine which companies or people are involved in financial transactions and income tax.At the source, deduct or collect taxes (TDS/TCS).
Useregistering for GST, filing IT returns, and conducting high-value transactions.TDS or TCS return filing.
RelevanceAll individuals and businesses having taxable income.only for organizations required to collect or deduct taxes.
Authority IssuingDepartment of Income Tax.Department of Income Tax.
Important Situationscreating bank accounts, filing income taxes, and buying real properties.TDS for contractual services, vendor payments, and salary.
Why PAN and TAN Are Critical for New Businesses
- Legal Compliance:
PAN is mandatory for filing income tax returns and registering for GST.
TAN ensures tax deductions or collections at source comply with tax laws. - Financial Transparency:
Both PAN and TAN enable businesses to undertake seamless financial transactions with government authorities, banks, and suppliers. - Avoiding Penalties:
Failing to secure PAN or TAN on time or non-compliance with their provisions can result in hefty penalties, legal issues, and reputational damage.
Steps to Obtain PAN and TAN
How to Apply for PAN: - Visit the official NSDL or UTIITSL websites.
- Fill Form 49A (for Indian entities) or Form 49AA (for foreign entities).
- Upload supporting documents, including identity/address proof, and company documents (e.g., certificate of incorporation).
- Pay the application fee and track the status online.
- Issuance time: Approximately 7-15 working days upon successful verification.
- How to Apply for TAN:
- Go to the NSDL-TIN website.
- Complete Form 49B with precise details of the business.
- Submit identity/address proof along with the form.
- Pay the processing fee and note the acknowledgment number.
- Issuance time: 10-15 working days post-verification.
Common Challenges Faced by New Businesses
Delays in Obtaining PAN or TAN:
The process can be delayed due to documentation errors or non-compliance during application. - Misunderstanding of Their Applications:
Many businesses struggle to understand when and how to use PAN versus TAN. - Penalties for Non-Compliance with TDS:
Late TDS payments or inaccurate filings may result in fines and interest charges. - How to Address These Challenges:
- Double-check documents before submission.
- Consult professional tax advisors to understand compliance requirements better.
- Stay updated on tax law changes through reliable sources
Practical Tips for Effective Compliance
Maintain accurate and updated financial records to simplify PAN and TAN application processes. - Regularly monitor changes in tax laws to avoid surprises.
- Engage professional consultants during the business setup phase for smoother compliance.
Conclusion
PAN and TAN are more than just identification numbers for businesses—they are stepping stones for legal compliance, financial transparency, and seamless operations. For every new venture in India, prioritizing these registrations and understanding their usage ensures a robust foundation. By adhering to tax regulations, businesses not only avoid penalties but establish credibility in the marketplace.
Frequently Asked Questions (FAQs)
What happens if a business operates without PAN or TAN?
Operating without PAN can lead to higher TDS rates, and failure to obtain TAN can result in penalties for non-compliance with TDS/TCS obligations. - Are PAN and TAN transferable between businesses or individuals?
No, PAN and TAN are unique to each entity and cannot be transferred. New businesses need to apply independently. - Can one entity hold multiple TANs or PANs?
A business can have only one PAN. However, multiple TANs may be required if the entity operates in more than one jurisdiction for TDS collection. - What are the penalties for non-compliance with PAN/TAN regulations?
Non-compliance can attract fines, including a penalty of ₹10,000 for incorrect PAN details and ₹10,000 for failure to apply for TAN or improper filing of TDS returns.