Meaning and Definition

• TDS stands for Tax Deducted at Source
  It is a method of collecting income tax at the time of making specified payments such as salary interest rent or commission
  
• TAN stands for Tax Deduction and Collection Account Number
  It is a unique 10-character alphanumeric number issued to entities that are responsible for deducting or collecting tax at source
  

Purpose and Function

• TDS is the actual tax amount deducted from payments and deposited with the government
  
• TAN is the identification number required by deductors to deposit TDS and file TDS returns
  
• TDS is a financial transaction
  
• TAN is a regulatory requirement for performing that transaction legally
  

Applicability

• TDS applies to specific payments made by individuals companies firms and government bodies that exceed prescribed limits
  
• TAN is applicable only to the person or entity responsible for deducting or collecting tax
  
• Without TAN no TDS can be deposited or reported to the tax department
  

Usage in Documentation

• TDS is reflected in tax payment challans Form 16 Form 16A and Form 26AS
  
• TAN is quoted in TDS returns TDS certificates and payment challans
  
• TDS ensures tax is collected at the source
  
• TAN ensures proper tracking and accountability of that deduction
  

Legal Requirement

• Deducting or collecting TDS without a valid TAN is not permitted under the Income Tax Act
  
• Quoting a wrong or invalid TAN while handling TDS attracts penalties
  
• TDS ensures revenue collection
  
• TAN ensures compliance and monitoring of the deduction process
  

In summary TDS is the actual tax deducted while TAN is the unique number that enables a business or individual to legally perform that deduction and report it to the government.