Income Tax terms such as PAN, TAN, etc. can be confusing for an individual and they might mistake one for another. However, the two has a fairly different set of uses and implementations in the financial domain.
Individuals can’t use PAN and TAN number alternatively for various income tax-related purposes, which is the having information about the same is essential.
What is a PAN?
PAN Card is a physical form of identifier issued by the Income Tax Department of India to individuals that have income and expenses beyond a certain threshold.
The card holds a ten-digit alphanumeric identity number which is unique for every individual and is valid throughout their life.
It can be used to track their involvement in financial transactions and help prevent tax fraud, as the financial entitlements are reflected in their profile.
Additionally, having such financial documents ready for the business owner or enterprises is crucial as it can help them for paying income taxes to attain tax credits.
One financial habit that business owners must have is to carry the required documents for the smooth operation of their organisation.
What is TAN?
Tax deduction and account number (TAN) is also a ten-digit alphanumeric code issued by the Income Tax Department of India, but to individuals that are liable for collection or deduction of tax at source.
Therefore, every individual that has to pay or collect taxes should possess a TAN necessarily quoting it in the TDS (tax deducted at source) and TCS (tax collected at source) documents.
Individuals or businesses need to provide TAN to save tax on income received from business or profession.
Difference between PAN and TAN number
The major difference between the two is in its usage and application as they serve different roles for accounting and finance. Here look at the differences between the two in terms of various factors.
- Code content – While both are 10-digit alphanumeric code, PAN has first 5 digits as alphabets followed by 4 numbers and an alphabet. Whereas, TAN starts with 4 alphabets followed by 5 digits and an alphabet at the end.
- Purpose/ usage – Unlike TAN, PAN can be used as a universal identifier for financial transactions made by that individual. TAN can only be used for a tax deduction or collection at source and other such related activities. It is to note that TAN can’t be used as proof of identification either, like PAN.
- Income Tax laws – While the Income Tax department issues both, PAN abides by Section 139 A of the IT Act of 1961 and TAN is accounted by Section 203 of Income Tax Act of 1961.
- Eligibility – Every taxpayer or assesse can apply for a PAN card, whereas, every individual or entity that has to file TDS or TCS needs to acquire TAN.
- Application forms – Indian citizens need to fill up Form 49A for PAN card and foreigners need to fill up Form 49AA for the same. Taxpayers or collectors should fill up the TAN application Form 49B for TAN.
- Documents required – Individuals or entity need to show valid ID proof, address proof, photographs, etc. for availing a PAN card which isn’t the case with TAN. Only a signed letter of acknowledgement needs to be submitted while filling up the TAN application Form online.
PAN card is considered as an important identifier for tracking financial transactions and hence is also used in cases of applying for advances.
For instance, if an individual or business entity requires a business loan to fund their various business operations, financial companies will ask for documents like PAN card during the application process.
They may have to provide TDS or TCS forms wherein TAN number is mentioned to avail only exemptions (if any).
Non-banking financial companies like Bajaj Finserv simplifies loan application procedure for existing customers by facilitating them with pre-approved offers on loan.
Subsequently, these are important financial documents that cater to the need of individuals by providing them with an identifier or identification number which can be tracked by various authorities to weigh their eligibility. With identifiers like PAN card and Aadhaar card, one can get small business finance, while TAN is needed in cases of TDS and TCS activities.
Even though similar, both are substantially different in terms of use and purpose. It is necessary for every taxpayer to understand the difference between these two, as it helps abide by all the regulations implemented by the Government of India.