Who Needs TAN and PAN? Eligibility Criteria for Tax IDs

Every person whose total income exceeds the basic exemption limit must apply for a PAN. The basic exemption limit for individuals for the financial year 2024-25 is ₹2.5 lakh under the old regime and ₹3 lakh under the new regime. However, PAN is also mandatory for several other categories regardless of income level.

Under Section 139A of the Income Tax Act, 1961, the following persons must apply for a PAN: any person carrying on business or profession whose total sales, turnover, or gross receipts exceed ₹5 lakh in a financial year; any person who is required to furnish a return of income; and any person who intends to enter into specified financial transactions. These transactions include opening a bank account, purchasing a motor vehicle, making a deposit exceeding ₹50,000, or purchasing immovable property valued at ₹10 lakh or more.

Non-residents who are required to file a return in India or who enter into financial transactions in India must also obtain a PAN. Additionally, any person who deducts or collects tax at source must have a PAN, though such persons typically also require a TAN.

Every person who is responsible for deducting tax at source (TDS) or collecting tax at source (TCS) must apply for a TAN. This requirement is specified under Section 203A of the Income Tax Act, 1961. The TAN is a 10-digit alphanumeric number that must be quoted in all TDS/TCS returns, challans, and certificates.

The purpose of TAN is to enable the Income Tax Department to track all tax deductions and collections made by a deductor. Without a TAN, a person cannot legally deduct tax or issue TDS certificates (Form 16/16A). The penalty for not applying for TAN or not quoting it in prescribed documents is ₹10,000 under Section 272BB.

Common entities that require TAN include: companies making salary payments, firms making payments to contractors, landlords receiving rent above a threshold, and any person making specified payments such as interest, professional fees, or commission. Even individuals who are not otherwise required to file returns must obtain TAN if they are liable to deduct tax.

The Income Tax Rules specify several transactions where quoting PAN is mandatory. These are listed under Rule 114B and include: sale or purchase of immovable property valued at ₹10 lakh or more; sale or purchase of a motor vehicle; opening a bank account; making a deposit exceeding ₹50,000 in a bank; purchase of foreign currency exceeding ₹25,000; and purchase of mutual fund units exceeding ₹50,000.

Additionally, PAN is required for: sale or purchase of securities exceeding ₹1 lakh; sale or purchase of jewellery exceeding ₹5 lakh; payment of life insurance premium exceeding ₹50,000 in a year; and entering into a contract for a time deposit exceeding ₹50,000. For cash transactions, any payment of ₹2 lakh or more for goods or services also requires the payer to quote PAN.

Failure to quote PAN in these transactions may result in the transaction being rejected or the payer being subjected to higher TDS rates. Under Section 206AA, if a person does not provide PAN to the deductor, TDS will be deducted at the higher of: the rate prescribed in the Act, 20%, or the rate in force.

Yes, a person can and often must have both PAN and TAN. PAN is a general identification number for all tax-related matters, while TAN is specifically for tax deduction and collection activities. A company, for example, will have a PAN for filing its income tax return and a TAN for deducting TDS on salaries and other payments.

The PAN is used for: filing income tax returns, making tax payments, entering into financial transactions, and as a general identifier with the Income Tax Department. The TAN is used exclusively for: deducting tax at source, depositing TDS/TCS with the government, filing TDS/TCS returns, and issuing TDS certificates.

It is important to note that a person cannot use their PAN in place of TAN for TDS-related compliance. The Income Tax Department maintains separate databases for PAN and TAN, and quoting the wrong number in TDS returns can lead to processing delays and penalties.

The consequences for non-compliance are significant. For PAN, if a person fails to apply when required, the Assessing Officer may levy a penalty of ₹10,000 under Section 272B. Additionally, transactions requiring PAN may be rejected, and higher TDS rates apply under Section 206AA.

For TAN, the penalty for failure to apply or quote TAN is ₹10,000 under Section 272BB. More importantly, without TAN, a person cannot legally deduct tax, and any tax deducted without TAN may be treated as not validly deducted. This can lead to disallowance of expenses in the deductor's hands and interest liability.

Beyond penalties, practical consequences include: inability to file TDS returns, delay in processing of refunds, and potential scrutiny by the Income Tax Department. For businesses, non-compliance can also affect their reputation and ability to enter into contracts with government entities or large corporations.

If you are unsure whether you need a PAN or TAN, review your income sources and transactions against the criteria above. For specific guidance on your situation, consult a qualified chartered accountant or tax professional who can advise on the correct application process and ensure compliance.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.