Introduction

In India’s structured tax compliance system, obtaining a Tax Deduction and Collection Account Number (TAN) is a legal requirement for any person or entity responsible for deducting or collecting tax at source under the Income Tax Act, 1961. This includes businesses paying salaries, commissions, contract fees, professional charges, rent, or interest—transactions commonly subject to Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). While the process of TAN application is relatively straightforward, delays in filing for TAN can have serious legal, financial, and operational implications. Such delays can disrupt financial transactions, lead to penalties, and reflect poorly on the entity’s compliance profile.

Non-Compliance with Statutory Obligations

The most immediate implication of a delayed TAN filing is non-compliance with statutory requirements. Section 203A of the Income Tax Act mandates that anyone deducting or collecting tax must apply for TAN before making any such deductions. Without TAN, the deductor is not legally authorized to withhold or remit taxes on behalf of the government. Any tax deducted or collected without quoting a valid TAN is considered a violation of tax laws, attracting legal consequences.

Inability to Deduct and Deposit TDS/TCS

Until a TAN is allotted, an entity cannot deduct or collect tax at source or deposit it with the central government. This may result in the delay of salary payments, vendor settlements, or professional fee disbursements, especially where TDS is mandatory. As a result, businesses may face pressure from stakeholders expecting timely payments. The inability to perform such financial operations on schedule can damage relationships with employees, consultants, and suppliers, and harm the firm’s operational efficiency.

Levy of Penalties and Fines

The Income Tax Department may levy a penalty of ₹10,000 under Section 272BB for failure to obtain TAN when required. Additionally, once TDS or TCS obligations arise and no TAN is filed, interest and late fees may be imposed for delayed tax deduction or deposit. For example, a deductor may face an interest of 1% per month for failure to deduct TDS and 1.5% per month for failure to deposit it after deduction. These financial penalties can escalate if the delay continues over several months or quarters.

Disallowance of Expenses in Income Tax Return

Another significant implication is the potential disallowance of business expenses under Section 40(a)(ia) of the Income Tax Act. If a company deducts TDS but fails to deposit it due to delayed TAN filing, the corresponding expenses may not be allowed as deductions during income tax assessments. This artificially inflates taxable income, increasing the tax liability. For a business with substantial payments under TDS scope, this could result in a considerable financial burden during the assessment year.

Negative Impact on Deductee’s Tax Credit

Delays in obtaining TAN also delay the filing of TDS returns and the issuance of TDS certificates to deductees. This has a direct impact on the Form 26AS of deductees, where tax credits are recorded. If the TDS is not reflected in time, the deductee may be unable to claim tax credits while filing their own returns, leading to higher tax liability or refund delays. This not only affects the financial standing of deductees but also exposes the deductor to reputational risk and potential legal claims.

Administrative Delays and Rectifications

Once TAN is filed late and TDS transactions have already occurred, the deductor may face additional administrative tasks such as filing backdated returns, calculating retrospective interest, issuing delayed certificates, and addressing correspondence with the tax department. These complications increase compliance costs and require additional time and effort from tax professionals or accounting staff, thereby straining business resources.

Hindrance in Regulatory Approvals and Contracts

Many government tenders, financial audits, and statutory compliance reports require the entity to quote its TAN. Delayed TAN registration may prevent businesses from participating in tenders, obtaining clearances, or completing due diligence requirements. Financial institutions and auditors may also raise red flags during evaluations, potentially delaying loans, investments, or certifications.

Conclusion

The delay in filing for TAN can create a cascade of legal, financial, and reputational issues for any entity required to deduct or collect tax at source. From statutory penalties and disallowed expenses to payment delays and strained vendor relationships, the consequences can affect both short-term operations and long-term credibility. As TAN is a foundational element of India’s TDS and TCS framework, it is crucial for businesses and professionals to apply for TAN proactively and integrate it into their compliance systems early in their operational lifecycle. Prompt TAN filing ensures smoother financial transactions, tax reporting accuracy, and uninterrupted compliance with the nation’s tax laws.

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