Mandatory for TDS Deduction on Contractor Payments

• Government departments and public sector undertakings are required to deduct TDS on payments made to contractors, suppliers, consultants, and service providers.
  
• Quoting TAN is mandatory while depositing this tax and filing TDS returns, making it a core requirement in all government contract executions involving tax deduction.
  

Part of Tender Compliance Documentation

• Bidders and contractors are often asked to provide a valid TAN during the tender application or vendor registration process.
  
• It serves as proof that the applicant is capable of legally deducting or complying with TDS obligations, especially in sub-contracts or work orders involving further payouts.
  

Required in Payment Processing Systems

• Government contract payments are processed through centralized accounting or treasury systems where TAN must be quoted.
  
• This ensures that TDS is correctly recorded, deposited with the government, and linked to the right deductor and project.
  

Ensures Transparency in Tax Credit to Vendors

• Contractors and vendors who receive payments from government bodies rely on proper TAN-linked TDS certificates (Form 16A) to claim tax credit.
  
• Errors or omissions in TAN reporting can lead to credit mismatches in Form 26AS, affecting the vendor’s tax compliance and refund eligibility.
  

Scrutinized During Public Audits and Assessments

• Use of TAN in government contracts is subject to audit by internal and external authorities, including the Comptroller and Auditor General (CAG).
  

TAN-linked deductions and payments are traced to ensure no tax evasion, misreporting, or non-compliance under the Income Tax Act.