In this blog post, Vrinda Saraf, a student at School of Law, Mumbai University and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the need for TIN ( Taxpayer Identification Number ).
INTRODUCTION: TIN (TAXPAYER IDENTIFICATION NUMBER)
Taxpayer Identification Number or TIN is the registration number assigned to business enterprises and organizations. It is a eleven digit number to be quoted in all tax and business related transactions and for its further correspondence. Just like how PAN or Permanent Account Number is a number assigned to taxpaying individuals, Tax Identification Number is a number allotted to business enterprises in order to track their transactions. Tax Identification Number is necessary for all organizations and business entities who have registered under Value Added Tax for conducting business, that is the sale of goods and services. Basically, if they are liable to pay tax and have exceeded the specified threshold limits, they have to apply for a VAT registration, and then they will be given a Tax Identification Number. It is mandatory for manufacturers, dealers, exporters, traders to have a Tax Identification Number.
The distinct number is allotted by the Income Tax (Sales) department of every state and the first two digits of the number indicate the unique code of the State, for example, it is 35 for Andaman and Nicobar Islands, 27 for Maharashtra, 09 for Uttar Pradesh, 19 for West Bengal, 08 for Rajasthan, 03 for Punjab, 07 for Delhi, 24 for Gujarat etc. The remaining nine digits of the code vary from State to State and are left to their discretion. Generally, the third and fourth code state the district code, the fifth and sixth code state the taluka or city code of the dealer/manufacturer/trader and the seventh to eleventh code states the serial number, starting from 00001 to 99999.
Tax Identification Number is used for business transactions done in the state and is also used for transactions between two or more states. Tax Identification Number is also synonymous with VAT number when it is used for intra state transactions.
It is required by all business companies to mention the Tax Identification Number on their official documents such as quotation price, invoice, sales orders etc.
A business entity can own only one Taxpayer Identification Number.
It is also pertinent to note that failure to mention the Taxpayer Identification Number on documents either deliberately or as an oversight will attract a penalty.
It should also be kept in mind that since the number is allotted by the sales tax department of every state, the procedure for application of the number varies from state to state and there is no standard or uniform procedure throughout the country, therefore different states have their own respective acts which govern Taxpayer Identification Number. Since there is no standard procedure, the forms to be used in application, the costs for application and also the penal provisions for a breach vary from state to state according to their respective acts.
Taxpayer Identification Number (TIN) is to be distinguished from Tax Information Network, which have the same acronym. The IT Department of India, to systematically and smoothly run the collection and tabulation of taxes, has created the Tax Information Network. This system has also greatly helped in tracing tax offenders through its modern concepts and implementation. The Number (TIN) is a distinct code allotted to business enterprises by the State Government.
Taxpayer Identification Number (TIN) is also to be distinguished from Tax Deduction Account Number (TAN). While Tax Identification Number is the eleven digit unique code allotted to businesses, to track Value Added Tax transactions, Tax Deduction Account Number is ten digit distinct code mainly for simplifying collection and deduction of taxes at source. It is issued by the Income Tax Department. Tax Identification Number is a all numeric code while Tax Deduction Account Number is a alpha numeric code, the first four digits being numbers, the next five, alphabets and the last one is a number again.
WHY DO YOU NEED TAX IDENTIFICATION NUMBER:
Just like how a Permanent Account Number (PAN) recognizes an individual in the eyes of the taxation department, in the same way, the unique code of the Taxpayer Identification Number recognizes a business entity in those eyes (who are registered under Value Added Tax). This identification, is like a signal to the business entity or the trader, manufacturer, dealer etc. that once he is registered, he now has to comply with the local and other taxation requirements of the concerned authorities and collect and pay the taxes accordingly to them on each and every invoice issued by him. Not only does it concern just collection and payment of taxes, but also compliances like quarterly and other filing of returns and their assessment according to the respective laws and statutes. It is imperative for organizations who desire to register under VAT to have their Taxpayer Identification Number Registered.
Once the Tax Identification Number has been obtained, only then can an invoice be issued, without it a business cannot issue a invoice.
One gets the benefit of Input Tax credit once he has obtained a Tax Identification Number.
The tax status of the business can be obtained on the respective websites by simply typing your Tax Identification Number and all details will be given.
It is more economical to be a registered dealer/enterprise than a non registered dealer/enterprise.
Owning a Tax Identification Number, enhances the credibility of the business entity, as the business appears to be more widespread and larger and also gives it a professional sheen. It attracts people to approach such an enterprise for business activities as it gives a more authentic and legitimate image of the enterprise.
If the business entity is involved in contracts with governmental departments, registered enterprises are preferred.
A person is liable to punished for non registration.
Once an entity has had its Taxpayer Identification Number registered, it gets very easy for the concerned authorities to track its Value Added Tax related transactions and activities throughout the country. It helps the authorities to cross verify all transactions, especially now that everything can be done at the click of a mouse. This ensures complete transparency.
Thus a Taxpayer Identification Number ensures that there is least concealment of taxes pertaining to value added tax transactions and goes a step further to see that business entities, traders, manufacturers, dealers etc are being fair in their tax dealings and responsible towards the Government.
A Taxpayer Identification Number ultimately ensures legitimacy of business transactions and activities.
Thus, it is evident that Tax Identification Number is beneficial and necessary for both, the Enterprise and the Government.
WHEN IS A TAXPAYER IDENTIFICATION NUMBER REQUIRED:
Since Value Added Tax Registration is wholly managed by the State, different states have different threshold limits and rules for registration of Taxpayer Identification Number. Hence it is imperative for a dealer/manufacturer/importer to check with the laws of his state for the rate of Value Added Tax which will be applicable in their state for the trading of goods. In some states, registration for Value Added Tax is mandatory who have a turnover of more than Rupees five lakhs, in some states the limit is ten lakhs.
In Maharashtra, the threshold limit for an importer is Rupees One lakh, that is the total turnover of sales has to exceed that much and the turnover of sales or purchases of taxable goods should not be less than Rupees Ten Thousand. For other dealers like, manufacturers, resellers, liquor dealers, works contractors, lessors etc. the limit is Rupees Ten lakhs and the turnover of sales or purchases of taxable goods should not be less than Rupees Ten Thousand. It is interesting to note that no threshold limits are there for voluntary registration. It is also clarified that turnover of Rupees one lakh and ten lakhs is connected to sales only. Sales of both taxable and non taxable goods are included. Also, no turnover limit is specified for an importer. Even when he imports goods worth Rupees one, he is classified as an importer. The dealer has to apply for the registration of Taxpayer Identification Number within thirty days from the date on which he has exceeded the threshold requirements. In case there is a change in the ownership or the constitution, then a fresh application for TIN has to be made within thirty days from the date of that change.
In Gujarat, The Gujarat Value Added Tax Act , 2003 governs the procedures and elaborates on Value Added Tax in the state. According to the Act, VAT Registration is necessary for dealers whose total turnover exceeds Rupees five lakhs or more and/ or the taxable turnover is equal or exceeds Rupees ten thousand. It is also mandatory for dealers to be registered under VAT if they registered under the Central Sales Tax (CST) Act or if their turnover in the first year exceeds the threshold limit. Also casual dealers who have a taxable turnover of over Rupees ten thousand are required to register under VAT. Also, voluntary registration is permissible for anyone who wishes to start business in the state and can obtain TIN for the same.
Also, with the boom of the online shopping industry many websites such as Paytm, Flipkart require VAT/TIN of the dealer. However, Paytm does make an exception, if a dealer does not have a TIN, but a VAT undertaking from the dealers side will be required which has to be duly signed and stamped. Goods such as books, sarees, and unstitched materials do not require VAT/TIN, the undertaking is taken from the trader, in place of the document. Flipkart on the other hand, allows traders registering with only PAN to sell only books. For all other items, VAT/TIN is required.
Documents required for TIN application-
As it is governed by the respective states, each of the state has its own list. A general list would include documents like ID proof, address proof, PAN card of the owner, around 5 photographs, address proof of the business entity, security assurance, copy of first invoice, bank statement etc.
It can thus be seen that it is absolutely mandatory for a dealer to own a TIN for his business entity once he has crossed the threshold limit. It can look like a cumbersome and long process in the already exhausting list of compliances, but it comes with its own prestige and punishment otherwise.