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Difference Between TDS and TCS

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TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are often confused due to their similar names, which leads to taxpayers using the two terms interchangeably. However there are quite a few differences between these two tax systems, and taxpayers should know how they work to stay compliant and manage their tax liabilities more effectively. So let’s see what separates tds and TCS, and also understand the tds and TCS difference with some examples.

What are the differences between TDS and TCS

Here is an overview of the major differences between TDS and TCS:

Tax Deducted at SourceTax Collected at Source
TDS is a type of tax that is deducted from the source of income by the payer before the payee receives it. Those who deduct the tax are called deductors, and the recipients of the income, after the tax has been deducted, are called deductees. Deductors are responsible for paying the deducted tax amount to the government on behalf of the deductees.TCS, on the other hand, is a type of tax that is collected by the seller from the buyer at the time of sale. The seller, who collects the tax, is referred to as the collector, and the collector must remit the tax to the government. So the main TDS and TCS differences are that TDS is taken from income at the source, whereas TCS is collected when a specific sale is made.
TDS is applicable to various types of income, such as salaries, professional fees, rent, interest, and commissions.TCS is only applicable on the sale of certain goods specified under the Income Tax Act, such as alcohol, metal, forest produce, tendu leaves, and motor vehicles with a price of more than Rs.10 lakh.
The rules related to TDS are given in various sections of the Income Tax Act, but they are mainly present between Sections 192 to 196D. For example Section 192 deals with TDS on salaries, Section 193 on interest on securities, Section 194 on income from dividends, etc.The rules for TCS are given under Section 206C of the Income Tax Act. This section goes into detail about the specific goods on which TCS must be collected, the rates of TCS collection, and how sellers can deposit the tax with the government.
The due date for depositing TDS with the government is the 7th of the following month in which the deduction is made. For example, if your employer deducts TDS in the month of October, they must deposit it with the Government by the 7th of November.TCS is collected in the month when the supply is made and must be deposited with the government within 10 days after the end of that month.
The responsibility lies with the entity (deductor) to make sure that the TDS is deducted at the time of payment and deposited with the government on time.For TCS, the seller of the goods or services is responsible for collecting the tax from the buyer at the time of sale and then depositing it timely with the government.
If your taxable income is within the exemption limit, you can claim a refund for the TDS that has been deducted during the financial year.TCS, however, is not adjustable against your tax liability. But in some conditions, refunds may be claimed.
TDS statements must be filed quarterly. Specific forms based on the type of payment and recipient are also required, for example, Form 24Q is used to report TDS on salaries paid to employees. Form 26Q is for reporting TDS on various incomes other than salaries, such as interest or rent, and Form 27Q is for reporting TDS on payments made to NRIs.For TCS as well, statements must be filed quarterly. This is done using Form 27EQ, which is used by the seller to report the TCS amount collected, the amount of tax deposited with the government, and other relevant details.
TDS vs TCS

Also Read: Understand the Five Heads of Income Tax

Understanding TDS and TCS with examples

Let’s take a look at some examples to get a better understanding of TDS and TCS.

TDS – Tax Deducted at Source

When individuals receive incomes such as salaries or commissions, a type of tax is deducted at the source by the payer before the income reaches the payee. So the payer (also called the deductor) is responsible for cutting a portion of the income and depositing it directly with the government. Exactly how much income is deducted as tax depends on the type of income. For example, if someone wins a lottery of more than Rs. 10,000, a TDS of 30% is deducted before the winner receives the prize. Similarly, if the annual rent of a building is more than Rs. 2.4 lakh, TDS is deducted at the rate of 10% before the landlord receives the rental payment. Different TDS rates apply to different types of incomes such as professional fees, commissions, interest, dividends, and more.

Example: Suppose the rent of a building is Rs. 55,000 per month. Over the year, the total annual rent will amount to Rs. 6.6 lakh. Since this amount exceeds the threshold limit of Rs. 2.4 lakh for TDS on rent, the tenant will have to deduct 10% TDS on the rental payments. So the monthly payment to the landlord will be Rs. 55,000 minus the TDS of Rs. 5,500 = Rs. 49,500.

Also Read: What is Tax Planning – Objectives, Types and Process

TCS – Tax Collected at Source

The deductor is responsible for deducting TDS from the income before it reaches the payee, but in the case of TCS, the seller is responsible for collecting the tax from the buyer when the sale is made. The seller or collector then deposits the TCS with the government. As different TDS rates apply for different types of incomes, TCS rates also vary depending on the type of goods or services sold. For example, the TCS rate is 1% on alcohol, 5% on tendu leaves, 2.5% on forest produce (except timber and tendu leaves), 1% on metals and so on. The rules governing TCS are provided under Section 206C of the Income Tax Act.

Example: If someone purchases Rs. 5 lakh worth of metal, the seller must collect 1% TCS, that is, Rs. 5,000 from the buyer at the time of the sale and deposit it with the government.

Conclusion

Both TDS and TCS ensure a reliable stream of revenue for the government by collecting taxes at either the source of income or the transaction. And since the taxes are collected upfront, these systems also help prevent tax evasion. If collectors and deductors don’t comply with these regulations, they can face penalties, interest charges, and even prosecution, so it’s important to fully understand how TDS and TCS work. A tax consultant can provide valuable guidance in navigating these complex systems and ensuring compliance.

FAQs

What are the full forms of TDS and TCS?

The full form of TDS is Tax Deducted at Source, on the other hand, the full form of TCS is Tax Collected at Source.

Is TCS required if TDS has already been deducted?

No. The  Income Tax Act under Section 206C (1H) says that if the buyer is liable to pay TDS, no TCS can be levied.

What are TDS and TCS amounts?

TDS and TCS amounts depend on various factors such as the type of income or transaction and the applicable rates set by the government. For example, if you win a lottery, 30% TDS will be levied, but the commission earned from the sale of lottery tickets exceeding Rs. 15,000 is only 5%. Similarly, TCS on tendu leaves is 5% and TCS on metals is 1%.

Who will deduct TDS and TCS?

TDS is deducted by the entity paying the income. For example, if you earn a salary your employer will deduct the TDS before you receive the paycheck. TCS, on the other hand, is collected by the seller of goods or services when you make a purchase.

What is the difference between TDS and TCS in GST?

Under GST, TDS is the tax that a specified buyer must deduct when paying for goods and services under a business contract if the total contract value is more than Rs. 2.5 lakh. TCS is the tax that e-commerce platforms collect when merchants sell goods or services through their site and process payments on behalf of these merchants.