Understanding the Difference Between TDS and TCS

22 November 2022
5 min read

Direct Taxes and Indirect Taxes are types of taxes that the government collects. Direct Taxes are contributed to the government by the person receiving the income. On the other hand, indirect taxes must be deposited with the government by the seller.

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are two instances of Indirect Taxes imposed by the government. It is a common misconception that TDS and TCS are the same for taxation purposes, but that is not the case. There is a significant difference between TDS and TCS.

The distinction between TDS Vs TCS deviates at the tax deduction and collection level, as well as who is responsible and who is applicable.

In this blog, we will evaluate what is TDS and TCS and discover the key differences between them.

TDS Meaning

Tax Deducted at Source was introduced to capture tax revenue at the source. However, as a result, when a taxpayer pays another taxpayer, they must subtract TDS and compensate it to the Central Government.

The idea of subtracting and paying ensures that the payer of income collects tax and that the recipient offers their income for taxation. In this manner, taxes are collected in advance, and the central government tracks income. When filing an income tax return, the taxpayer may claim the TDS. The rate of TDS varies depending on the kind of income, the kind of taxpayer, and the taxpayer's place of residence.

TCS Meaning

TCS mandates that the seller of goods oversees tax collection from the purchaser of said goods. The seller deposits the money to the national government's credit after collecting the tax.

collection incidents occur when receiving sales proceeds or debiting accounts, depending on which occurs first. Section 206C of the Income Tax Act, 1961 lists the items subject to TCS. These include wood, alcohol, lignite, and coal, as well as parking lots and toll booths. TCS is only allowed to sell goods up to a maximum of ₹50 lakhs.

Key Differences Between TDS & TCS

TCS vs TDS is two distinct concepts with utterly different uses. So, let us examine what is the difference between TDS and TCS here in detail-

Characteristics

TDS

TCS

Meaning

The idea of TDS was introduced to collect tax from the very source of income. According to this idea, a person (deductor) who is required to make a payment of a specific nature to another person (deductee) must withhold tax at source and remit it into the Central Government's account.

A seller of certain goods may collect tax from the buyer in addition to the sale price and remit it to the government on their behalf through Tax Collection at Source (TCS).

Transactions Included

Interest, Wages, Brokerage, Professional Fees, Commissions, Purchases of Goods, Rent, and other items are all subject to TDS.

Timber, Scrap Metal, Minerals, Alcoholic Beverages, Tendu Leaves, Forested Goods, Automobiles, and Toll Tickets are all subject to TCS.

Responsibility for Tax Collection or Deduction

When a payer (deductor) makes a defined payment to another person (deductee), the tax is deducted at the source and returned to the Central Government. Additionally, TDS exemption can be obtained by submitting Form 26AS (TDS certificate).

The seller's only responsibility is to collect TCS from the buyer and remit it to the Central Government.

Limits

TDS is levied on purchases of goods that exceed ₹50 lakhs, according to Section 194Q.

TCS is levied on the sale of goods if the amount exceeds ₹50 lakhs, according to Section 206C (1H).

Tax Deduction or Collection Period

TDS is taken out whenever a payment is made, regardless of when it becomes due.

On the other hand, TCS is collected at the time of sale by the seller.

Returns Filing

Quarterly

  • Form 24Q – Salary, Form 26Q – Other than Salary,
  • Form 27Q – Deductee is an NRI

Quarterly

  • Form 27EQ

Due Date for Payment to the Government

The due date for depositing TDS is the 7th of every month. Note that TDS returns are required to be submitted quarterly.

Per the rules, TCS will be deducted during the month the supply is made. Note that it will be deposited within ten days from the end of the month of supply to the government's credit.

Effects of Failing to Deposit TDS or TCS

A person will be subject to various legal repercussions if they fail to collect or deposit tax. Included is a fine equal to the tax that was either not deducted or not collected. In addition to the fine assessed, the person will face a prison sentence of three to seven years.

Interest may also be assessed if either the TCS or the TDS is not deposited. Interest must be paid on the monthly tax amount that qualifies for deductions. Interest is computed at 1% per month or 1.5% per month for each month after the tax is eligible for deductions. The interest rate charged for TCS calculations remains constant at 1%.

Conclusion

One of the most crucial facets of managing a successful business is staying on top of your tax obligations. To keep your business operating smoothly, it is essential to understand the TDS and TCS difference and make sure you pay any TDS or TCS you have collected to the government's credit. In addition, if taxes are deducted from your pay, make sure to file your taxes on time.

You May Also Be Interested to Know-

1.

Best Tax Saving Mutual Funds to Invest in India 2022

2.

10 Best Tax-Saving Instruments and Their Returns

3.

Tax Loss Harvesting - Everything You Should Know

4.

How Gains from Intraday Trading are Taxed?

5.

How to Calculate Your Tax Liability in Debt Mutual Funds

Do you like this edition?
LEAVE A FEEDBACK
ⓒ 2016-2023 Groww. All rights reserved, Built with in India
MOST POPULAR ON GROWWVERSION - 3.6.9
STOCK MARKET INDICES:  S&P BSE SENSEX |  S&P BSE 100 |  NIFTY 100 |  NIFTY 50 |  NIFTY MIDCAP 100 |  NIFTY BANK |  NIFTY NEXT 50
MUTUAL FUNDS COMPANIES:  ICICI PRUDENTIAL |  HDFC |  NIPPON INDIA |  ADITYA BIRLA SUN LIFE |  SBI |  UTI |  FRANKLIN TEMPLETON |  KOTAK MAHINDRA |  IDFC |  DSP |  AXIS |  TATA |  L&T |  SUNDARAM |  PGIM |  INVESCO |  LIC |  JM FINANCIAL |  BARODA PIONEER |  CANARA ROBECO |  HSBC |  IDBI |  INDIABULLS |  MOTILAL OSWAL |  BNP PARIBAS |  MIRAE ASSET |  PRINCIPAL |  BOI AXA |  UNION KBC |  TAURUS |  EDELWEISS |  NAVI |  MAHINDRA |  QUANTUM |  PPFAS |  IIFL |  Quant |  SHRIRAM |  SAHARA |  ITI