PAN and TAN in India: Full Form, Meaning, and Key Differences

When dealing with the Income Tax Department, whether for filing returns, deducting tax, or opening a business account, you’ll often come across the terms PAN and TAN. Though both are government-issued identification numbers, they serve entirely different purposes in India’s tax system.

These two identifiers are essential for every entrepreneur looking to register a business in India or carry out any financial transactional activity.

To obtain a PAN card and a Tax Deduction or Collection Account Number (TAN) card, one must be familiar with the distinctions between the two before launching a company.

Here in the blog, we’ll learn the difference between PAN and TAN. As well as what PAN or a TAN Number means, and how they differ from each other in India.

Key Differences Between PAN and TAN

Basis	PAN	TAN
Full Form	Permanent Account Number	Tax Deduction and Collection Account Number
Purpose	Used for all tax-related identification and financial transactions	Used for TDS/TCS deduction and reporting
Issued To	Individuals, companies, and other taxpayers	Entities deducting or collecting tax at source
Format	10-character alphanumeric (ABCDE1234F)	10-character alphanumeric (MUMA12345B)
Mandatory For	Taxpayers/Non-Taxpayers, Foreign nationals and entities	Individuals who deduct or collect 203A taxes
Laws	Section 139A, Income Tax Act, 1961	Section 203A, Income Tax Act, 1961
Forms to fill	Indian Citizenship – Form 49A Foreign National – Form 49AA	Form 49B
Issued By	Income Tax Department	Income Tax Department
Penalty for Not Having	₹10,000 (under Section 272B)	₹10,000 (under Section 272BB)

What is PAN? (Permanent Account Number)

The Income Tax Department issues a Permanent Account Number (PAN) to every Indian taxpayer. It is a 10-digit alphanumeric identity. This number keeps track of all of a person or business’s financial and tax transactions in one place.

The PAN links all tax-related operations, such as payments, TDS, TCS, and income tax returns, to a specific individual.

For a better understanding of the PAN registration process, read our guide on how to apply PAN card for a company and ensure your business stays tax-compliant from the start.

Who needs a PAN:

• Individuals: Indian citizens with valid ID and address proof
• Minors: Parents or guardians can apply using their documents and the minor’s DOB proof
• HUFs: Applied through the Karta for financial transactions
• LLPs: Required for tax filing and business operations
• Partnership Firms: Mandatory for filing income tax returns
• Companies: Must quote PAN in all financial transactions
• Trusts/AOPs/BOIs: Apply using Certificate of Registration
• Local Authorities: Apply with a registration or agreement copy
• Artificial Juridical Persons: Apply with registration or government-issued identity proof
• Foreign Citizens: Must apply if involved in financial transactions in India

Uses of PAN:

• Filing income tax returns
• Opening a bank account
• Conducting high-value financial transactions
• Serving as identity proof for tax purposes
• Buying or selling a motor vehicle (other than two-wheelers)
• Applying for a credit or debit card
• Opening a demat account
• Making cash payments of ₹50,000 or more
• Depositing over ₹50,000 in a single day at a bank

Example of PAN:

A PAN is a 10-character alphanumeric code with a fixed structure:

• The first five characters are letters
• The next four characters are numbers
• The last character is a letter

Example: ABCDE1234F

Here’s what each part means:

• First three letters (ABC): Random alphabetic series.
• Fourth letter (D): Represents the type of holder — for example, P for individual, C for company, H for HUF, A for AOP, etc.
• Fifth letter (E): The first letter of the person’s or entity’s name.
• Next four digits (1234): Sequential numbers issued by the system.
• Last letter (F): A check digit used for verification.

What is TAN? (Tax Deduction and Collection Account Number)

When you start a business and hire people, one of the most important things to think about is obtaining a Tax Deduction Account Number (TAN). If a business or employer is responsible for deducting tax from payments, they need a TAN so the government can track those deductions properly.

Businesses deducting tax at source without a valid TAN may face penalties. After receiving a TAN, businesses are required to submit TDS returns every three months.

Who needs a TAN:

You must obtain TAN registration if you:

• Deduct TDS on salaries, rent, contractor payments, or professional fees
• Are an individual required to deduct TDS under the Income Tax Act
• Are a firm or company making payments covered under TDS provisions
• Collect tax at source (TCS) on specified sales or services

Example: If a company pays a consultant professional fees above ₹30,000, it must deduct TDS and quote its TAN in the transaction.

Uses of TAN:

TAN Is Compulsory for Quoting

You must quote your TAN in:

• TDS/TCS returns
• Tax payment challans
• TDS certificates (Form 16, 16A, etc.)
• Any correspondence with the Income Tax Department

For more insight on income tax documentation, see our detailed post on what is Form 16. It breaks down the structure, parts, and why it’s essential for your tax return filings.

Penalty for Non-Compliance

A penalty of ₹10,000 under Section 272BB applies for not obtaining a TAN or quoting an incorrect TAN.

Separate TAN for Each Entity

Each firm, company, or individual deductor must have a unique TAN. One TAN cannot be shared between multiple entities.

TAN vs. PAN

PAN identifies a taxpayer, while TAN identifies a tax deductor or collector. Both are independent and serve different purposes.

Mandatory for Filing TDS Returns

You cannot file TDS returns or upload TDS statements on the TRACES portal without a valid TAN.

Example of TAN:

TAN Number: MUMA12345B

Here’s how it is structured:

• First four letters (MUMA): Represent the city or jurisdiction code associated with the Income Tax department issuing the TAN (for example, ‘DEL’ for Delhi or ‘MUM’ for Mumbai)
• Next five digits (12345): A unique number assigned to each deductor or collector.
• Last letter (B): A check code generated automatically for verification.

Example to Understand the Difference Between PAN and TAN

Suppose ABC Pvt. Ltd. is a registered company.

• It uses PAN to file its own income tax returns and carry out business transactions
• It uses TAN to deduct and deposit TDS on employee salaries or vendor payments

In short, PAN identifies the company as a taxpayer, while TAN identifies it as a tax deductor.

How to Apply for PAN and TAN in India

For PAN:

Required Documents for PAN Card:

• Address Proof: Aadhaar card or any valid address document (for individuals).
• Photograph: Two passport-size photos (for individuals).
• Birth Certificate: Required for minors.
• Parents’ Proof: ID and address proof of either parent (for minors).
• Certificate of Incorporation: Mandatory for companies and LLPs.
• Agreement: Partnership or LLP agreement, as applicable.

Applying for a PAN is a straightforward process. All you need to do is:

• Go to the NSDL or UTIITSL website and choose “Apply for PAN.”
• Fill out Form 49A (for Indian nationals) or Form 49AA (for overseas applicants with taxable income in India)
• Provide proper identity and address evidence
• Pay the application fees
• Your PAN number will be issued after the application and verification

For TAN:

Documents Required for TAN Application:

• Address Proof: Aadhaar card or any valid address document.
• Applicant Information: Name, contact details, and signature of the applicant.
• Certificate of Incorporation: Required for companies and LLPs.
• Agreement: Applicable for LLPs and Partnership Firms.

Employers or businesses handling TCS/TDS can follow the steps below to apply for TAN.

• Go to the NSDL official website
• Fill out Form 49B with information about your firm
• Send in all the required supporting documentation
• Pay the cost for processing
• Once the application is approved and finished, you will get the TAN number

Common Mistakes and Tips While Using PAN and TAN

Common Mistake	What Happens	Tip to Avoid It
Using PAN instead of TAN in TDS filings	The return gets rejected or attracts penalties	Always use TAN for TDS/TCS-related transactions and PAN for income tax purposes
Not quoting TAN in challans or TDS certificates	Non-compliance can lead to fines under the Income Tax Act	Double-check that TAN is correctly mentioned in all TDS/TCS documents
Using personal PAN for business transactions	Creates discrepancies in tax records and compliance	Use the company or firm’s registered PAN for all business-related dealings
Not updating PAN or TAN details after structural or address changes	Leads to mismatched records and possible delays in processing	Update your PAN or TAN details promptly on the Income Tax portal

Note: Keep both numbers valid, active, and correctly linked to the right entity to ensure smooth tax compliance.

Conclusion

Your PAN is your tax identification, and your TAN is your tax deduction identity. Both are necessary for easy and legal financial transactions in India.

If you fall into one of the categories that need one or both, make sure you apply appropriately and keep accurate records to be compliant.

The appropriate ID makes sure you’re following the rules and keeps your records clean, whether you’re making money or paying taxes.

Do you need assistance getting a PAN or TAN? Let the experts at LegalWiz.in take care of everything for you promptly, reliably, and entirely online.