Introduction

The Tax Deduction and Collection Account Number (TAN) is a 10-character alphanumeric code issued by the Income Tax Department of India to entities and individuals who are required to deduct or collect tax at source. Introduced under Section 203A of the Income Tax Act, 1961, TAN serves as a mandatory identifier for all TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) activities. While it plays a central role in tax compliance, its significance is equally critical in the context of statutory audits. Statutory audits are mandatory financial reviews conducted under laws governing companies, firms, and institutions, primarily to assess the accuracy, legality, and completeness of financial reporting. In this setting, TAN acts as a pivotal tool for auditors to verify tax deductions, reporting accuracy, and adherence to regulatory obligations.

Importance of TAN in Audit Verification

During a statutory audit, one of the auditor’s responsibilities is to ensure that the organization has correctly discharged its TDS and TCS obligations. This includes verifying whether tax was deducted or collected as required, deposited on time, and reported accurately. TAN is the first point of reference in this examination. Auditors use TAN to review the organization’s entire spectrum of TDS-related transactions. It allows auditors to trace tax deductions from vendor payments, salaries, contractor fees, rent, and other specified categories to ensure that they align with provisions of the Income Tax Act.

Cross-Verification with Form 26AS and TDS Returns

The existence and use of a valid TAN allow auditors to cross-verify TDS payments made by the company with third-party tax records such as Form 26AS, which reflects tax credit details of deductees. Auditors also verify the quarterly TDS returns (like Form 24Q, 26Q) filed by the organization using its TAN. If there are mismatches in the amounts deducted and those reported, or if the TAN was not quoted or quoted incorrectly, the auditor flags this as a compliance issue. Proper use of TAN thus ensures a clean trail for each tax deduction and deposit, helping both the organization and the auditor meet statutory reporting requirements.

Evidence of Compliance with TDS Regulations

TAN serves as documentary evidence of compliance with TDS laws. Auditors rely on it to confirm whether the business has deducted TDS at the correct rates, paid it within prescribed deadlines, and issued the required TDS certificates (Form 16, 16A) to employees and vendors. The presence of a TAN on payment challans, TDS certificates, and returns provides legal assurance that the deductor is registered and operating within the regulatory framework. Absence of TAN or incorrect usage may be highlighted in the audit report, which can have reputational and financial consequences for the organization.

Review of TAN in Internal Control Systems

As part of reviewing internal control systems, auditors assess how the TAN is managed by the business. This includes checking whether the entity is using only one valid TAN, whether access to TAN-linked systems like the TRACES portal is restricted to authorized personnel, and whether TDS deductions are being consistently tracked and reconciled. In large organizations with multiple business units or branches, auditors also examine if any duplicate or inactive TANs are being used inadvertently, which could lead to confusion or compliance violations.

Impact of TAN Non-Compliance on Audit Findings

Failure to obtain TAN when required, or misuse of TAN—such as quoting the wrong TAN in returns or using a TAN not allotted to the entity—can have serious implications in an audit. Auditors are mandated to report such non-compliance in their audit reports, especially under the Companies Act, 2013 and applicable tax audit standards. Such findings may be disclosed in the tax audit report (Form 3CD) under clauses related to TDS defaults. These reports are submitted to regulatory authorities and can lead to further scrutiny, notices, or penalties from the Income Tax Department.

TAN and Tax Audit Report Disclosures

Under Section 44AB of the Income Tax Act, businesses crossing certain turnover thresholds must undergo a tax audit and submit a detailed report in Form 3CD. One of the specific clauses in this report asks the auditor to provide details of TDS and TCS compliance, including the TAN of the deductor, nature of payments, amount deducted, and whether the tax was deposited in time. If incorrect TAN details are quoted or if the organization has failed to quote TAN altogether, it must be disclosed in this report. This creates an official record of non-compliance and may trigger tax penalties or investigations.

Conclusion

TAN is far more than a procedural requirement—it is a key element of legal and financial integrity in tax compliance and audit verification. In the context of statutory audits, TAN enables auditors to authenticate TDS and TCS transactions, evaluate the adequacy of internal controls, and confirm whether the business is operating in accordance with tax regulations. It is used for cross-checking government filings, tracing tax credits, and ensuring that all deductions are lawful, timely, and properly documented. Misuse or negligence in handling TAN can result in adverse audit observations, penalties, and reputational damage. Therefore, maintaining accurate and compliant use of TAN is essential for passing statutory audits and demonstrating overall financial transparency and accountability.

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