April 26,2023

What is Difference Between TDS And TCS

TDS and TCS are essential taxes that the Indian government levies. As a taxpayer or business owner, it is recommended that you understand the distinction between the two concepts. This knowledge will help you avoid unnecessary penalties. Read this article to know more about the difference between TDS and TCS with examples.

Definition Of Tax Deducted at Source (TDS)

Tax Deducted at Source is an income tax that was introduced to collect tax revenue from the income source directly. This may include dividends, salary, rent, commission and other such incomes. A taxpayer paying another taxpayer has to deduct the Tax Deducted at Source and remit this to the central or union government. The concept of ​​paying with deductions ensures that the income payer collects the tax and the recipient contributes the income for taxation purposes. This facilitates the central government to track income and collect taxes in advance. The taxpayer can claim a TDS when filing the income tax return. TDS tax rate varies depending on the type of taxpayer, type of income and taxpayer’s residency status.

Definition Of Tax Collected at Source (TCS)

In India, tax is levied at a given rate by the company, purchaser or payer on the sale of certain goods falling into predefined categories. This is known as collecting tax at the same source or TCS. The seller then remits the taxes collected from the buyer to the government and issues their TCS certificate for the buyer to receive the credit. Tendu leaves, parking lots, scraps, liquor, jewellery, gold bars, toll gates, and more, are considered under TCS. The TCS calculation rate used, varies by the item under consideration.

What Is The Difference Between TDS And TCS?

While tax deducted at source and collected at source incur at the point of income generation, both taxes are different. Here are the main distinctions.
[Image of TDS vs TCS comparison chart]
  • Parties involved: The buyer or payer deducts Tax Deducted at the Source, whereas the seller or payee collects the TCS or Tax Collected at the Source.
  • Timing: TDS is the tax deducted from a business’s payment to an individual if the amount exceeds a certain threshold. TDS is deducted whenever a payment is made, irrespective of when the payment is due. TCS, on the other hand, is collected by the seller at the time of sale.
  • Applicability: TDS is deducted from wages, interest, professional fees, brokerage, buying of goods, commissions, rent and other items. TCS is levied on sales of goods such as scrap metal, timber, alcoholic beverages, minerals, forested goods, tendu leaves, toll tickets and automobiles.
  • Thresholds: Section 194Q imposes TDS on purchases of goods exceeding ₹50 lakh. As per Section 206C, TCS or Tax Collected at Source is applicable on the sale of goods if the revenue exceeds ₹50 lakh (1H).
  • Collection method: TDS is only applied to payments that exceed a certain amount. TCS is collected from the buyer at the time of sale. The seller applies TCS over and above the same amount. This does not include manufacturing or production material.
  • Due dates: TDS payments are due on the 7th of each month. TDS returns must be fulfilled every quarter. And on the other hand, TCS is deducted in the month of supply itself. It is deposited to the government’s credit within 10 days of the end of the supply month.
  • Forms: TDS returns are filed quarterly using Forms 24Q for salary, Form 26Q for other than salary and Form 27Q if the deductee is an NRI. Return filing for TCS occurs quarterly using Form 27EQ.

Difference Between TDS And TCS With An Example

TDS

Assume X works for a company. Before making the final payment, X’s employer deducts the applicable tax from their monthly salary. TDS is the amount deducted in this manner.

TCS

Assume Y is a mineral wood trader. Z (the customer) buys some mineral wood from Y. After which, Y (the trader) collects a 5% tax from Z (the customer) during the sale; this amount is referred to as Tax Collected at Source or simply TCS.

Effects of Failing to Deposit TDS or TCS

Individuals who do not collect or pay taxes face legal action. These include penalties equivalent to tax deducted or not received. Such tax evasion could also lead to imprisonment for a period of 3 to 7 years.
Under Section 271H, the deductor/collector may be penalised for failing to pay the TDS on time and file the TDS/TCS statement correctly.
For filing their TDS/TCS return incorrectly, the deductor/collector could face a penalty of at least ₹10,000 and up to ₹1,00,000. In addition, Section 201(1A) of the Income Tax Act imposes a monthly interest rate of 1.5% if TDS is not deducted from the date the tax is credited until the date the tax is credited. The same 1.5% interest rate applies for TDS late payments from the deduction to the final payment date.

Conclusion

Tracking your tax liability is one of the most important aspects of running a successful business. It is important to understand the difference between TDS and TCS to keep your business running smoothly and to pay your accumulated TDS or TCS to the government. Also, if tax is withheld from your salary, please file your tax return on time.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

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