Definition

Tax IDN is a unique identifier assigned by the income tax authority of India for tracking tax-related information and ensuring compliance.

Description

A tax identification number is needed for both individuals and businesses. TINs were introduced at different times across different countries. But they became more common in the mid 20th century when tax systems were getting complex. So for efficient tax administration, governments of different countries introduced TIN ID.

Like in the United States, a social security number (SSN) which is a type of TIN was introduced in the 1930s for the security purpose. 

This number was later made mandatory for identification. Similarly, after years in the 1990s, PAN (personal identification number) was introduced to improve tax compliance and administration.

The primary purpose of owning a TIN was to prevent tax evasion.

 

Importance of tax ID number
 

Importance of a Tax Identification Number (TIN)

This unique identification number is essential for individuals because:

• TIN is necessary for tax compliance. It is essential for filing accurate tax returns, claiming deductions, and receiving refunds.
• Also, individuals require TIN to access various government programs like Social Security, Medicare, and unemployment benefits.
• TIN is also needed for finance transactions like opening bank accounts, obtaining loans, and conducting financial transactions.
• For individuals, TIN helps in legal identification. Serves as a unique identifier for legal and administrative purposes.

For businesses, the TIN is:

• It is crucial for filing business tax returns, paying taxes, and complying with tax regulations.
• Smooth for business operations. Small businesses require a TIN to obtain licences and permits and open bank accounts.
• Employee Management: Essential for payroll processing, tax withholdings, and reporting.
• Businesses use TIN to conduct business with other entities, such as suppliers and customers.
• Businesses use TIN for legal entity Identification. It serves as a unique identifier for legal and administrative purposes.

Broader Economic Impact:

• TIN helps the government collect taxes efficiently, funding essential public services.
• It facilitates the detection of tax evasion and fraud, ensuring fairness in the tax system.
• TIN helps bring economic stability.
• TIN helps in data analysis to provide valuable data for economic research and policymaking.

Specific Benefits:

• Streamlined Tax Administration: Simplifies taxpayers' and government agencies' tax filing process.
• Improved Efficiency: Reduces errors and delays in tax processing.
• Enhanced Transparency: Increases accountability and reduces opportunities for tax evasion.
• Risk Management: Helps identify potential tax risks and enables proactive measures.

How to get a tax ID number?

To get a Tax ID number (TIN), you can follow these steps:

Step 1: Determine the Type of Tax ID Number You Need

Identify which type of tax ID number is needed by you. Like individuals including US citizens, permanents residents and temporary residents can apply for SSN (Social Security Number)

Those in businesses, trusts, estates, and other entities will require an Employer Identification Number (EIN).

Another type of TIN is Individual Taxpayer Identification Number (ITIN) which is needed by U.S. taxpayer ID but is not eligible for an SSN (e.g., non-residents).

Step 2: Gather Required Information

To seek a TIN number of any type, it is important you gather personal identification documents such as birth certificate, passport, or state ID. For EIN, apply details like the legal name of the business, type of entity, and responsible party. And for ITIN, you need Proof of identity and foreign status, such as a passport or national identification card.

Step 3. Apply for a Tax ID Number

Apply online through the Social Security Administration (SSA) website, by mail, or in person at your local SSA office. For EIN, apply online through the IRS website, by mail, fax, or phone. And for ITIN apply by mailing Form W-7, your tax return, and supporting documents to the IRS. You can also apply through an IRS-authorised Certifying Acceptance Agent.

Step 4. Wait for Processing

SSN takes 2-4 weeks to receive your SSN card after applying. And for EIN, when applying online, you can receive your EIN immediately. If applying by mail, it may take 4-6 weeks. For ITIN, processing usually takes 7-11 weeks, depending on how you applied.

Step 5. Receive Your Tax ID Number

SSN: You'll receive a Social Security card with your SSN on it.

EIN: You'll receive your EIN confirmation notice using the method you selected during your application.

ITIN: You'll receive a letter from the IRS with your ITIN.

Step 6. Keep Your Tax ID Number Safe

Store your tax ID number securely, which will be used for tax filings and other official purposes.

Step 7. Use Your Tax ID Number as Required

Use the SSN for personal tax returns and employment.

Use the EIN for business tax filings, opening a business bank account, and hiring employees.

Use the ITIN to file U.S. tax returns if you are not eligible for an SSN

Factors that affect tax ID number

Here are four factors that can affect a Tax ID number:

• Type of Entity

The type of Tax ID number you require (SSN, EIN, or ITIN) depends on the entity type (person, business, trust, etc.). Different laws and procedures apply whether you're an individual, a corporation, a partnership, a sole proprietor, or some other entity.

• Legal Structure and Ownership Changes

A new EIN may be necessary if a company's ownership or legal form changes, such as going from sole proprietorship to corporation. These changes can have a significant impact. For instance, you'll need to apply for a new EIN if you incorporate as a sole proprietorship.

• Location

The sort of Tax ID number you require and the application process may vary depending on your nation of residence or place of business. An ITIN, for example, is applied for by non-residents who are required to file U.S. taxes, whereas U.S. citizens or residents utilise an SSN or EIN.

• Compliance with IRS Regulations

Compliance with IRS regulations, such as proper use and reporting under your Tax ID number, is not just important, it's crucial. Misuse or failure to comply can lead to penalties, fines, or needing a new Tax ID number. For example, failure to file required tax returns or misreporting under an EIN can result in IRS enforcement actions.

Example

Apple Inc. handles all business tax-related activities in the US with an Employer Identification Number (EIN), a kind of TIN. To recruit staff, file corporation tax returns, and engage in other financial operations with the Internal Revenue Service (IRS), you must have this EIN.

For instance, Apple would use its EIN to identify itself as a corporate organisation if it were to file a tax return or report to the IRS. This TIN is necessary for the business to legally operate in the United States and to comply with federal tax rules.

 

FAQ

What is a Federal ID Number?

A Federal ID Number, sometimes called an Employer Identification Number (EIN), is a unique nine-digit number given to companies and other organisations that operate in the United States by the Internal Revenue Service (IRS). It serves the same function as an individual's Social Security Number (SSN) in identifying the corporation for tax purposes.

What is TIN Vs EIN?

The word "TIN" (Tax Identification Number) refers to any number that the IRS uses to identify taxpayers. SSNs, ITINs, and EINs are among them.

Employer Identification Numbers, or EINs, are a particular kind of TIN that companies and other entities use for tax-related activities including paying employees and filing tax returns.

Define FEIN.

Federal Employer Identity Number, or FEIN. For tax purposes, firms operating in the US are assigned a unique nine-digit number by the IRS.