What Is The Difference Between Tds And Tcs

What Is The Difference Between TDS and TCS?

Individuals and businesses must record all TDS/TCS deductions and collections to meet all requirements fully.

Written by : Daina Mathew

Reviewed by : Lalit Lata

Lalit Lata

2023-10-15

8002 Views

7 minutes read

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Income tax is one of the most important aspects of financial planning. You need to keep a check on your income and investments and strategically plan to buy life insurance, a term plan, or any other tax-saving investment to save tax.

Income tax is not the only source of taxes for the government. It also collects indirect taxes such as Tax Deducted At Source (TDS), Tax Collected At Source (TCS), and Goods and Services Tax (GST) from us by levying them on goods, services, and transactions. In the case of direct taxes, payments are made by the ones earning the money. In the case of indirect taxes, it becomes the responsibility of the seller to deposit the tax with the government.

Two indirect taxes frequently confused with one another are TDS and TCS. Let us find out what they are.

Table Of Content:

TDS and TCS

Tax Deducted at Source and Tax Collected at Source are both incurred at the source of income.

  • TDS is the tax which is deducted on a payment made by a company to an individual, in case the amount exceeds a certain limit. TCS is the tax which is collected by sellers while selling something to buyers.
  • TDS deduction is applicable on payments such as salaries, rent, professional fees, brokerage, commission, etc. TCS deduction is applicable on sales of goods like timber, scrap, mineral wood, and so on.
  • TDS applies only to payments exceeding a certain amount. TCS applies to sales of specific goods that don’t include production or manufacturing material.

Did You Know?

TDS initially covered only 4 sources of income - salary, interest on securities, interest other than interest on securities, and dividends.

Source: ICMAI

Claim Settlement Ratio

What Is The Difference Between TDS and TCS?

The two most essential taxes the Indian government collects are TDS and TCS.

These taxes must be withheld, collected, and deposited with the appropriate government agencies. Although the difference between TDS and TCS is noteworthy, people frequently combine and use these terms synonymously.

Read the table below to understand the difference between TDS and TCS.

ParametersTDSTCS

Nature

Purchase of goods and services

Sale of goods and services

Transactions covered

Rent, commission, interest, rent, salaries, brokerage, etc.

Sale of toll tickets, forest products, cars, tendu leaves, minerals, liquor, timber, scrap, etc.

Time of Deduction

When payment is due or made, whichever comes sooner

At the time of the sale

Due dates

7th of every month, though the returns have to be submitted quarterly

Deducted in the month in which supply is received. Deposited to the Government within 10 days from the month’s end in which it is supplied.

Person responsible

Individuals or companies making the payment

Individuals or businesses selling the goods or service

Filing quarterly statements

Form 24Q (in case of salaries), Form 26Q (for others except salaries), and Form 27Q (for payments to NRIs)

Form 27EQ

Tax Deducted at Source and Tax Collected at Source- examples

Let’s say Mr.X works at a company. His company deducts a tax on his monthly salary at the applicable rate before they make him the final payout. The amount that is deducted in this manner is TDS.

Now, Mr.Y is a mineral wood trader. He sells some mineral wood to Mr. Z. While making the sale, Mr. Y collects 5 percent tax; this sum collected by Mr. Y from the customer is called TCS.

In October 2018, a new rule came into force. As per this rule, an operator of an e-commerce market has to collect a tax on the net transaction amount from suppliers who provide them with goods. The rate for this Tax Collected at Source is 1%.

What Happens When You Fail To Collect Or Deposit Tax?

There are legal consequences for failing to collect or deposit tax. This could include:

  • A penalty amount equal to the tax which is not deducted or collected
  • Imprisonment of three to seven years plus a fine
  • Interest on the monthly tax amount is eligible for deduction. This interest applies for each month from the day when the tax becomes eligible for deduction to the day when it is deducted (at the rate of 1 percent) or when it is paid to the government (at the rate of 1.5%). In the case of TCS, the interest rate remains 1%.

TDS and TCS under GST

This applies to e-commerce businesses. Every e-commerce company has to collect some tax on the net transaction value of their sales. This rule came into force in October 2018.

The rate for TCS in this situation would be 1% (0.5% CGST + 0.5% SGST). Alternatively, it could also be 1% of IGST.

Glossary:

  • Direct Taxes: Direct taxes are the taxes the nation's highest tax body imposes on individuals and corporations. In addition to being the government's primary source of income, these taxes are also vital for funding public projects and stimulating the economy.
  • Tax-saving instruments: These investments let you take advantage of certain deductions, exemptions, and rebates that can lower your tax bill. In addition to assisting you in reducing your tax liability, these financial tools are excellent choices for investments.
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Conclusion

It is crucial to keep track of all your taxes. If TDS has been deducted from your income, you can get refunds if you file returns on time. If you have collected TCS, your priority should be to deposit the collected TCS with the authorities and ensure smooth and lawful trade. You can also save taxes through tax deductions via life insurance, mutual funds, and other tax-saving instruments.

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FAQs Related to TDS & TSC

As per Section 206C(1H) of the Income Tax Act, 1961, TCS can not be collected if a buyer is liable to pay TDS.

TDS is the tax withheld from payments made to individuals by businesses when the total exceeds a certain threshold. TCS is the tax vendors must collect from customers when they sell goods.

The payer deducts TDS before transferring funds to the payee, whereas TCS is acquired by the seller from the buyer at the point of sale.

If a buyer of goods and services meets the threshold of Rs. 2,50,000, they are entitled to deduct TDS under GST while making payments under a commercial contract.

 

The tax that an online retailer collects from merchants who sell products or services through its website and who have the e-commerce platform handle payment processing on their behalf is known as TCS under GST. 

If an individual neglects to deduct tax at source, they will be responsible for paying a penalty equivalent to the tax they neglected to deduct or pay.

If someone does not collect tax at the source, they will be responsible for paying a penalty equivalent to the tax they did not collect.

Penalties for providing false information or failing to provide a TDS/TCS statement can range from ₹10,000 to ₹1,00,000.

The TDS refund amount takes three to six months to appear in the taxpayer's associated bank account after the ITR is filed. The speed of e-verification determines how long it takes to refund the extra TDS amount.

Section 192 covers TDS on salary. If an employee's pay exceeds the basic exemption limit, all employers must compute income tax on that amount and withhold TDS from salary payments.