PAN and TAN – Income Tax

PAN and TAN – Income Tax

Permanent Account Number (PAN)

Permanent Account Number (PAN) is a unique, national and permanent identification and will not be affected by a change of address of the holder. Permanent Account Number (PAN) is a 10-digit alpha numeric number like AAHFC2373B, issued by the Income Tax Department for the purpose of the identification of an assessee under Income Tax Laws.

Income tax is the tax payable on income of a person after deductions, etc. at a percentage depending on the nature of a person (individual, company or firm). The Income Tax Department of the Government of India needs to identify a person for determining tax, and for this, every person/company liable to pay tax needs to apply for a Permanent Account Number (PAN).

Companies and LLPs (for income tax purposes, LLP is a firm) mandatorily require to have/obtain a PAN number for doing business. Apart from tax purposes, the PAN requires to be quoted in many instances such as opening a new bank account, purchasing or selling property or investing in the market or elsewhere.

Components of PAN

Permanent Account Number (PAN) is a 10-digit alpha numeric number like AAHFC2373B

  • The first three characters i.e. "AAH" in the above PAN are alphabetic series running from AAA to ZZZ. 
  • The fourth character of PAN i.e. "F" in the above PAN represents the status of the PAN holder. (“P" stands for Individual, "F" stands for Firm, "C" stands for Company, "H" stands for HUF, "A" stands for AOP, "T" stands for TRUST etc.). 
  • The fifth character i.e. "C" in the above PAN represents first character of the PAN holder's last name/surname. 
  • The next four characters i.e. "2373" in the above PAN are sequential numbers running from 0001 to 9999.
  • The last character i.e. "B" in the above PAN is an alphabetic check digit.

Tax Deduction and Collection Account Number (TAN)

Certain category of payments requires Tax Deduction at Source (TDS) and the tax so deducted must be remitted to the Government of India. To enable TDS remittance, aTax Deduction and Collection Account Number (TAN) is required. This can be obtained after approval and issue of PAN.

The collection tax will be made at the source where income arises or accrues. The Income Tax Act mandates that the payer should deduct a specific percentage from the payment and pay the balance to the recipient.

For example, when paying salary to the employee and if the employee comes under the tax payment bracket, the employer shall deduct tax from the salary and remit the same to the government on behalf of the employee.

The payer in all cases except salary payments is required to pay TDS to the Income Tax Department within the 7th day of the following month in which the expense is booked or payment has been made, whichever is earlier. In case of salary, TDS needs to be paid within 7 days of the payment of salary.

The payer has to file quarterly returns to the Income Tax Department with the details of payee and their PAN, date of deduction and date of remittance to the department, etc.