The 4th character of a PAN card helps identify whether the taxpayer is an individual, company, firm, trust, or HUF. This small letter is crucial for accountants and deductors to determine correct TDS rates and avoid penalties. Use our free online tool below to instantly verify any PAN type.
Why the 4th Character of PAN Card Matters More Than You Think
📌 Amrut Bonus Tool – Quick PAN 4th Character Checker
Most of us look at our PAN card just as a formality—something we need to open a bank account or file income tax returns. But if you're a finance professional, accountant, or even a business owner who deals with TDS deductions, there's a tiny but powerful detail on that card you should never ignore — the 4th character of the PAN.
That single letter can help you instantly know the status of the PAN holder — whether they are an individual, a company, an LLP, a trust, or a government entity. And that directly impacts how much TDS you deduct, whether you're issuing a Form 16A, or preparing Form 26Q or 27Q.
In this comprehensive guide, we'll explore everything you need to know about the PAN 4th character, including real-world examples, common mistakes, legal implications, and practical tools to make your TDS compliance easier. Whether you're an experienced CA or just starting your accounting career, this guide will help you avoid costly errors.
👉 Watch this quick video to understand the PAN 4th character and avoid costly TDS mistakes:
🔍 How Does the 4th Character Help in Real Work?
Let's say you receive an invoice from someone named "ABC Associates." Sounds like a firm, right? But how can you be sure if it's a partnership, a company, or just an individual using a fancy name?
Here's where PAN comes to the rescue. Just look at the 4th character:
- P = Individual (includes sole proprietors)
- F = Firm / LLP
- C = Company (Pvt Ltd, Public Ltd, OPCs)
- H = HUF (Hindu Undivided Family)
- T = Trust (charitable, religious, or private)
- A = AOP (Association of Persons)
- B = BOI (Body of Individuals - clubs, societies)
- L = Local Authority (municipalities, panchayats)
- J = Artificial Juridical Person (universities, hospitals)
- G = Government Departments
This small detail saves you from wrong TDS deduction, mismatches in Form 26AS, and notices from CPC or the Assessing Officer. The 4th character directly determines which TDS section applies and at what rate—a difference that can be as much as 8% in some cases.
🚫 3 Common Mistakes People Make with PAN 4th Character
1. Assuming Business Names Indicate Entity Type
Many accountants make the mistake of assuming that a business name like "M/s XYZ Traders" automatically means it's a firm. In reality, sole proprietors also use these prefixes. The only reliable way to verify is by checking the 4th character of their PAN. If it shows 'P', it's an individual proprietorship, not a partnership firm.
2. Not Verifying PAN Before TDS Deduction
Some businesses rely solely on vendor declarations without independently verifying the PAN. This is risky because vendors might not update documentation after entity conversion, and invoice headers can be misleading. Always cross-check the PAN 4th character with the Income Tax portal before processing TDS.
3. Using Old PAN for Converted Entities
Sometimes companies convert from one form to another (e.g., partnership to private limited company). When this happens, they must apply for a new PAN with the appropriate 4th character. However, some entities continue using their old PAN, which creates mismatches between MCA records and Income Tax records, leading to TDS credit issues and potential expense disallowance.
✅ Step-by-Step Guide: How to Verify PAN Type in 3 Simple Steps
Step 1: Obtain the Complete PAN Number
Request the vendor or deductee to provide their complete 10-character PAN. Verify it appears in the standard format: ABCDE1234F (5 letters, 4 numbers, 1 letter). If they provide:
- An incomplete PAN (less than 10 characters)
- Only numbers or only letters
- Special characters or spaces
Reject it immediately and ask for the correct PAN. Don't process any payment without a valid PAN format.
Step 2: Identify and Decode the 4th Character
Count from left to right and note the 4th character. Use this quick reference:
ABCPP1234K→ 4th character is P = IndividualAACCC5678M→ 4th character is C = CompanyBBFFF9012N→ 4th character is F = Firm/LLP
You can use our online tool at the top of this page for instant verification, or use the Excel formula mentioned below for bulk checking.
Step 3: Cross-Verify with Official Sources
For critical vendors or high-value transactions (above ₹10 lakhs annually), don't just rely on the PAN alone. Cross-verify using these official sources:
- Income Tax e-Filing Portal: Login with your credentials → Go to "Services" → Select "Verify PAN Details" → Enter the PAN to see the name and status
- TRACES: For TDS purposes, use the bulk PAN verification facility on TRACES portal. You can upload a list of PANs and get validation reports
- MCA Portal: For companies, search the Ministry of Corporate Affairs database to verify company status (Active/Struck Off/Dissolved)
- GSTIN Verification: The first 10 digits of GSTIN is the PAN. Verify consistency between GST and PAN records
This three-step verification process takes less than 5 minutes per vendor but can save you from months of rectification work and potential penalties.
💼 3 Real-Life Case Studies Where 4th Character Made the Difference
Case Study 1: The "Consultancy Services" Trap
Situation: A manufacturing company hired "Premium Business Consultancy Services" for market research, paying ₹5 lakhs. The professional letterhead suggested a corporate entity.
The Discovery: PAN check revealed the 4th character was P (individual), not C (company).
Impact: Applied Section 194J @ 10% instead of Section 194C @ 2%, saving ₹40,000 in short deduction plus interest and penalties.
Case Study 2: HUF vs Individual Rental Income
Situation: A company rented office space from "Kumar Family Properties," assuming an individual owner.
The Discovery: PAN's 4th character was H (Hindu Undivided Family).
Impact: TDS certificate issued correctly in HUF's name ensured proper credit in Form 26AS, avoiding 6 months of disputes and rectification.
Case Study 3: Struck-Off Company Using Old PAN
Situation: "Digital Marketing Solutions Pvt Ltd" continued operations after being struck off by MCA.
The Discovery: While PAN showed C (company), MCA portal revealed "Struck Off" status.
Impact: Client stopped payments immediately, asked for valid current PAN, prevented TDS getting stuck with non-existent entity and expense disallowance.
📋 PAN 4th Character Table with Meaning
| 4th Letter | Represents |
|---|---|
P | Individual (includes sole proprietors) |
F | Firm / LLP |
C | Company – Pvt Ltd, Public Ltd, OPCs |
H | Hindu Undivided Family (HUF) |
A | Association of Persons (AOP) |
T | Trusts (including charitable or religious) |
B | Body of Individuals (like clubs, societies) |
L | Local Authority – municipalities, panchayats |
J | Artificial Juridical Person – universities, hospitals |
G | Government Departments |
If you have a list of PAN numbers and want to extract the 4th character (which reveals whether it's an individual, company, firm, etc.), use this simple formula in Excel:
=MID(A1, 4, 1)
This will return the 4th character from cell A1. You can drag the formula down to apply it to all 100 PANs easily.
📌 Real-Life Example for Accountants
Suppose you're booking professional fees worth ₹1,00,000 and PAN shows 4th character as "P". That means it's an individual and TDS @ 10% under Section 194J applies.
But if you blindly assume it's a company and apply 2% or skip TDS, you could be liable for interest, penalties, and disallowance under Section 40(a)(ia).
📢 Pro Tip: Always validate the 4th PAN character when preparing TDS registers, vendor master, or during statutory audits.
⚖️ Why It Matters Legally
Under Income Tax Act, wrong classification of deductee or failure to deduct TDS properly can lead to:
- Interest under Section 201(1A)
- Penalty u/s 271C
- Disallowance of expenses under 40(a)(ia)
So, this tiny letter isn't just a letter. It's your shield against tax notices.
📊 Impact of PAN 4th Character on TDS Rates
The 4th character directly affects TDS rates under various sections:
- Section 194J (Professional/Technical Services): Individual ('P') = 10%, Company ('C') = 2% (technical only)
- Section 194C (Contracts): Individual/HUF ('P'/'H') = 1-2%, Company/Firm ('C'/'F') = 2%
- Section 194I (Rent): Same rates for all, but proper classification ensures correct Form 26AS credit
- Special Case: Transport contractors ('P') with vehicle ownership declaration are exempt from TDS
A single wrong classification can lead to 8% difference in TDS rates, causing significant compliance issues and financial impact.
✅ Best Practices for TDS Compliance
1. Vendor Master Verification
Implement a mandatory checklist: PAN card collected, 4th character verified, entity type matches documents, verified on Income Tax portal, and for companies—CIN verified on MCA portal.
2. Annual Re-verification
Re-verify PANs annually for vendors with transactions exceeding ₹10 lakhs, new vendors, and those who changed business structure.
3. Use Excel Automation
Auto-extract 4th character using =MID(A1,4,1), flag mismatches, create alerts for re-verification, and generate monthly exception reports.
4. Maintain Audit Trail
Save screenshots of PAN verification, keep MCA portal search records, document basis for TDS sections, and store vendor declarations with dates.
🔧 Handling Special Cases
Invalid PAN Format: Reject any PAN not matching ABCDE1234F pattern. Don't process payments without valid format.
Foreign Entities: If no Indian PAN, apply higher TDS under Section 206AA (20% or treaty rate). Maintain Tax Residency Certificate for DTAA benefits.
Entity Conversion: When entity type changes, new PAN with correct 4th character is mandatory. Old PAN must be surrendered. Update vendor master immediately and issue separate TDS certificates for periods before/after conversion.
Inactive PANs: Verify status on IT portal before payments. For companies, check MCA status. Don't accept "Inoperative" PANs.
💡 Quick Pro Tips
- Color Code Excel: Green for verified C/F (lower rates), Yellow for P (individual), Red for needs verification
- Quarterly Audits: Review new vendors, high-value transactions (top 20%), and entity changes every quarter
- Set Reminders: Annual PAN re-verification, TDS filing deadlines, vendor master updates
- Cross-Check GSTIN: First 10 digits of GSTIN = PAN. Use for dual verification
- Document Everything: Keep dated verification records for audit trail and statutory compliance
If the PAN entered in your TDS return is invalid or incorrect:
- ❌ The deductee's TDS won't reflect in their Form 26AS
- ⚠️ You may get a default notice from the Income Tax Department
- 💸 TDS may be treated as not deducted or paid, leading to interest under Section 201(1A)
- 🚫 Expense may be disallowed under Section 40(a)(ia)
❓ Frequently Asked Questions (FAQs)
1. What does the 4th character in PAN card mean?
It indicates the type of PAN holder – Individual (P), Company (C), Firm (F), HUF (H), etc. This helps in deciding the correct TDS rate.
2. Why is the 4th character of PAN important for TDS?
Because different PAN types attract different TDS rates. Using the wrong type may lead to defaults or penalties.
3. How can I check my PAN type online?
You can use the PAN 4th character online tool in this article – just enter your 10-digit PAN and get the type instantly.
4. What if PAN number is entered wrongly in TDS return?
The TDS won't reflect in Form 26AS. You may get a default notice, and face interest and expense disallowance under 40(a)(ia).
5. Is there a tool to extract 4th PAN character in Excel?
Yes, use the formula =MID(A1,4,1) to extract the 4th letter from any PAN in Excel.
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