Introduction
A TAN Number (Tax Deduction and Collection Account Number) is a unique 10-character alphanumeric code issued by the Income Tax Department of India to individuals or entities responsible for deducting or collecting tax at source (TDS/TCS).
Structure of TAN
A TAN consists of 10 characters in the following format: AAAA99999A
- First 4 characters: Alphabetic (first three letters represent the city where TAN was issued, and the fourth letter is the initial of the entity’s name).
- Next 5 characters: Numeric (unique for each TAN).
- Last character: Alphabetic (a checksum character).
Section 194T
In the last blog, we spoke about the newly introduced Section 194T, where payments made by a Partnership Firm or an LLP to the partners will now attract a TDS of 10%, if the payments cross a threshold of Rs. 20,000 in aggregate in a Financial Year.
Apply TAN
Hence, any such Partnership Firms or LLPs making payments to their partners, if the payment exceeds Rs. 20,000, must apply for TAN and subsequently deduct TDS and deposit it to the Government.
File TDS Returns
Firms are required to file quarterly TDS returns using Form 26Q. The due dates are:
- Q1 (April-June): July 31st
- Q2 (July-September): October 31st
- Q3 (October-December): January 31st
- Q4 (January-March): May 31st
Issue TDS Certificates
After filing returns, firms must provide Form 16A certificates to partners, enabling them to claim the TDS amount in their individual tax returns.
Implications for Firms and Partners
- Increased Compliance: Firms need to update their accounting systems to incorporate TDS deductions on partner payments, ensuring timely deposits and accurate record-keeping.
- Cash Flow Considerations: Partners will receive payments net of TDS, which may affect their immediate cash flow. However, they can claim credit for the TDS deducted when filing their personal income tax returns.
- Penalties for Non-Compliance: Failure to deduct or deposit TDS can result in interest charges and penalties. Delayed TDS deposits attract an interest of 1.5% per month, and late filing of TDS returns incurs a penalty of ₹200 per day.
