TDS and TCS are two of the most significant sources of income for the government. And, it’s crucial for businesses to make such on-time tax payments to avoid penalties and stay compliant.
Read as we take a deep dive into the difference between TDS and TCS and their importance for businesses.
Table of Contents
What is TDS?
TDS stands for Tax Deducted (or withheld) at Source. As per Section 194Q, the income tax department mandates any company or individual to deduct tax at the source if the payment exceeds Rs. 50 lakhs for the purchase of goods and services, like rent, consulting, legal fees, royalty, technical services, etc.
The TDS rates are predecided by the government under the Income Tax Act. Click on the button below to find out the TDS rates on different types of goods and services for FY 2021-22.
In any TDS transaction, the company or individual deducting TDS from the payment is called a deductor, and the company or person receiving the said payment is called the deductee.
What is TCS?
Tax Collected at Source, or TCS is a tax imposed on goods by the seller, who collects it from the buyer at the time of sale. Section 206C of the Income Tax Act, 1961 specifies the goods and services on which TCS is applicable. The threshold for TCS on the sale of goods is Rs. 50 lakhs.
Although both taxes are levied at the point of origin of income/payment, there are quite a few significant differences between TDS and TCS. Read on to get a clear understanding of the difference between TDS and TCS.
Examples of TDS and TCS
➡️Let’s consider an example of TDS in the context of salary payments:
Suppose you are an employee working for a company. Your monthly salary is Rs. 50,000. As per the income tax regulations, your employer is required to deduct TDS from your salary before making the payment to you.
Let’s assume that the applicable TDS rate for your income slab is 10%. In this case, your employer will deduct 10% of your salary as TDS, which amounts to Rs. 5,000 (10% of Rs. 50,000). After deducting TDS, your employer will pay you the remaining amount of Rs. 45,000.
The deducted TDS amount of Rs. 5,000 will be deposited by your employer to the government on your behalf. This TDS can then be claimed as a tax credit while filing your income tax return. The TDS amount is considered as tax already paid by you, which reduces your overall tax liability.
So, in this example, TDS is the amount deducted from your salary by your employer and remitted to the government as income tax on your behalf.
➡️Now, Let’s consider an example of TCS in the context of the sale of goods:
Suppose you run a business that sells alcoholic beverages. As a seller, you are required to collect TCS on the sale of alcoholic liquor as per the applicable tax regulations.
Let’s say you sell a case of alcoholic liquor to a customer for Rs. 10,000, and the TCS rate for alcoholic liquor is 5%. In this case, you will collect 5% of the sale value, which amounts to Rs. 500 (5% of Rs. 10,000) as TCS.
After collecting the TCS amount of Rs. 500, you will remit it to the government as per the specified timeline and procedures.
The customer who purchased the alcoholic liquor can adjust the TCS amount of Rs. 500 against their tax liability while filing their income tax return.
In this example, TCS is the amount collected by you as the seller on the sale of alcoholic liquor, and it is subsequently remitted to the government. The TCS serves as tax already paid by the buyer, which can be adjusted against their tax liability.
Difference between TDS and TCS
|
TAX DEDUCTED AT SOURCE (TDS) |
TAX COLLECTED AT SOURCE (TCS) |
|
Meaning |
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| TDS is tax deducted at source by any company or individual making a payment if the payment exceeds the thresholds mentioned under respective sections. | TCS is a tax collected by the seller, at the time of sale. |
|
Transactions Covered |
|
| TDS is applicable on interest, salaries, brokerage, professional fees, commission, purchase of goods, rent, etc. | TCS is applicable on the sale of timber, scrap, minerals, liquor, tendu leaves, forest produce, cars, and toll tickets. |
|
Limits |
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| Under Section 194Q, TDS is applicable on the purchase of goods, if the amount exceeds Rs. 50 lakhs. | Under Section 206C (1H), TCS is applicable on the sale of goods, if the amount exceeds Rs. 50 lakhs. |
|
Rates |
|
| The tax deduction rate (TDS) for the purchase of goods is 0.1% of the sum exceeding Rs. 50 lakhs. | The tax collection rate (TCS) for the sale of goods is 0.1% of the sale sum exceeding Rs. 50 lakhs. |
|
Time of Deduction/Collection |
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| TDS is deducted whenever a payment is due or made, whichever is earlier. | TCS is collected by the seller at the time of sale. |
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Person Responsible |
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| TDS is to be deducted by the individual (or company) making the payment. | TCS is to be collected by the individual (or company) selling the specified goods. |
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Due Dates |
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| The due date for depositing TDS is the 7th of every month while TDS returns have to be submitted quarterly. | TCS will be deducted during the month in which the supply is made. It will be deposited within 10 days from the end of the month of supply to the credit of the government. |
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Filing of Quarterly Statements |
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| There are three different returns to be filed for TDS – Form 24Q (on salaries), Form 26Q (other than salaries), and Form 27Q (payments made to NRIs). | There is one quarterly return in Form 27EQ for collection of tax at source (TCS). |
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Unavailability of PAN |
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| As per sec 206 AA, those who fail to provide a Permanent Account Number (PAN) to the person making the payment will be charged TDS at the following rate, whichever is higher:
– rate specified in the corresponding provision of the Act; – rate of 20%. |
Section 206CC requires anyone paying an amount liable to TCS to provide their (PAN) to the person responsible for collecting the tax (hereafter, referred to as the collector); otherwise, the tax will be collected at the following rate, whichever is higher: -twice the rate specified in the corresponding provision of this Act;· -rate of 5% |
Failure to Deposit TDS or TCS with the Government
The deductor/collector can be penalized if they fail to pay TDS on time and file their TDS/TCS return correctly under Section 271H. The deductor/collector can be fined a minimum of Rs. 10,000 and a maximum of Rs. 1,00,000 for filing an incorrect TDS/TCS return. Also, Section 201(1A) of the Income Tax Act mandates an interest of @1.5% per month applicable for non-deduction of TDS from the date on which tax was deductible to the date on which tax is deducted.
In case of late TDS payments, the same interest of 1.5% will apply from the date of deduction to the payment date.
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TDS and TCS under GST
- TDS (Tax Deducted at Source) under GST: TDS under GST is applicable to specified government departments, local authorities, and certain categories of taxpayers. They are required to deduct a certain percentage of the invoice value while making payments to suppliers who are registered under GST.
Key points about TDS under GST:
- The TDS rate is generally 2% (1% each for Central GST and State/Union Territory GST).
- TDS is deducted at the time of making payment or crediting the supplier’s account, whichever occurs earlier.
- The deductor needs to file a TDS return, providing details of the deducted tax and the supplier.
- The deducted TDS amount is credited to the electronic cash ledger of the supplier, and the supplier can utilize it for offsetting their GST liability.
- TCS (Tax Collected at Source) under GST: TCS under GST is applicable to e-commerce operators who facilitate the supply of goods or services through their platforms. They are required to collect a specified percentage of the transaction value as tax at the time of collection/payment from the buyers.
Key points about TCS under GST:
- The TCS rate varies based on the nature of the supplies (e.g., 1% for intrastate supplies of goods, 0.5% for interstate supplies of goods).
- TCS is collected by the e-commerce operator at the time of receiving payment from the buyer.
- The e-commerce operator needs to file a TCS return, providing details of the collected tax and the buyer.
- The collected TCS amount is credited to the electronic cash ledger of the buyer, and the buyer can utilize it for paying their GST liability.
We hope this helped you understand the difference between TDS vs TCS. Subscribe to our weekly newsletter to stay updated about all the recent tax changes & their effect on your business.
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Frequently Asked Questions
What is TDS?
TDS stands for Tax Deducted (or withheld) at Source. As per Section 194Q, the income tax department mandates any company or individual to deduct tax at the source if the payment exceeds Rs. 50 lakhs for the purchase of goods and services, like rent, consulting, legal fees, royalty, technical services, etc.
What is TCS?
Tax Collected at Source, or TCS is a tax imposed on goods by the seller, who collects it from the buyer at the time of sale. Section 206C of the Income Tax Act, 1961 specifies the goods and services on which TCS is applicable. The threshold for TCS on the sale of goods is Rs. 50 lakhs.
