Introduction

In India, the system of Tax Deducted at Source (TDS) is designed to ensure that income tax is collected by the government at the point where income is generated. One of the most common sources of income subject to TDS is salary. Employers who pay salaries to their employees are legally obligated to deduct tax from these payments based on applicable income tax slabs. To perform this obligation lawfully and transparently, the employer must obtain a Tax Deduction and Collection Account Number (TAN). TAN serves as the unique identifier of the deductor (employer) in all TDS-related processes, and its role in salary deductions is both operational and regulatory in nature.

Legal Requirement Under Income Tax Act

The Income Tax Act, 1961, mandates under Section 192 that employers must deduct tax at source from salaries paid to employees if the employee’s income exceeds the basic exemption limit. To carry out this deduction and deposit the tax with the central government, the employer must possess a valid TAN, as stipulated under Section 203A. This TAN must be quoted in all TDS returns, payment challans, and TDS certificates issued to employees. The failure to obtain or quote TAN when required is treated as a violation and is subject to penalty under Section 272BB.

Facilitating TDS Return Filing

TAN plays a central role in the filing of quarterly TDS returns (Form 24Q) related to salary payments. These returns are submitted by the employer to the Income Tax Department and contain detailed information about the salary paid and tax deducted for each employee. The TAN ensures that the TDS filings are correctly mapped to the deductor’s records in the department’s database. Without a valid TAN, the system will not accept the TDS returns, leading to non-compliance and potential penalties.

Issuance of Form 16

At the end of each financial year, every employer must provide a Form 16 certificate to employees. This certificate acts as proof that tax has been deducted and deposited with the government on the employee’s behalf. The employer’s TAN must be mentioned on Form 16, along with the details of the amount deducted and deposited. If the TAN is missing or incorrect, Form 16 is rendered invalid, which can impact the employee’s ability to claim credit or file accurate income tax returns. Therefore, TAN ensures that the TDS certificate is legitimate and verifiable.

Tracking and Credit of Tax to Employee

When tax is deducted from an employee’s salary, it must be credited to the government using Challan 281, which requires the employer’s TAN. The TAN enables the Income Tax Department to match the deducted amount with the correct employee’s PAN (Permanent Account Number) and credit it accordingly in their Form 26AS. This linkage ensures that the deducted tax is reflected accurately in the employee’s account, enabling them to receive tax credit and avoid mismatches during income tax assessments.

Enabling Access to TRACES Portal

TAN is also required for the employer to access the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal, which is used to download Form 16, file correction returns, and reconcile TDS payments. Employers use TAN credentials to log into TRACES and manage all employee-related TDS activities. Without a valid TAN, the employer cannot register on TRACES or perform these functions, making it essential for proper TDS administration on salaries.

Promoting Transparency and Compliance

TAN promotes accountability and transparency in the payroll system. It helps the Income Tax Department keep track of all tax deductions made by employers and ensures that the correct amount is deposited on time. TAN also serves as a deterrent against tax evasion and under-reporting, as it creates a digital trail of every deduction and payment. For employers, having a TAN and using it correctly is a mark of regulatory compliance and good corporate governance.

Conclusion

TAN is indispensable in the process of salary-based tax deduction in India. It is not just a technical identifier but a legal requirement that enables employers to deduct, deposit, report, and certify taxes paid on behalf of employees. From filing TDS returns and issuing Form 16 to ensuring accurate tax credit for employees and accessing government tax systems, TAN facilitates every stage of salary tax compliance. Employers must therefore obtain TAN before processing any TDS on salaries to ensure lawful operations and maintain financial integrity.

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