Understanding the Difference Between TDS and TCS
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 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 overseas 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
|
Quarterly
|
|
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. |
Example of TDS/Tax Deducted at Source
Ajay is employed at a company and earns an annual salary of ₹12,00,000. The company is required to deduct TDS from his salary based on the applicable income tax slab rates for the financial year.
The income Slab rate for his salary in 2024 - 30%.
Let us break down Ajay's salary for TDS deduction:
First ₹2,50,000: No tax
Next ₹2,50,000 (₹2,50,001 to ₹5,00,000): 5% of ₹2,50,000 = ₹12,500
Next ₹5,00,000 (₹5,00,001 to ₹10,00,000): 20% of ₹5,00,000 = ₹1,00,000
Remaining ₹2,00,000 (₹10,00,001 to ₹12,00,000): 30% of ₹2,00,000 = ₹60,000
TDS Deduction = ₹12,500 + ₹1,00,000 + ₹60,000 = ₹1,72,500.
Example of TCS/Tax Collected at Source
Ms. Roopa is purchasing a new luxury car from an automobile dealership for ₹15,00,000. As per the TCS rules, the dealership is required to collect TCS at the rate of 1% on the sale of motor vehicles exceeding ₹10,00,000.
The current TCS rate for motor vehicles that are more than Rs. 10,00,000 is 1%.
TCS = 1% of ₹15,00,000 = ₹15,000
The dealership will collect an additional ₹15,000 as TCS from Ms. Roopa at the time of purchase. This amount will be deposited with the government as tax collected at the source.
GST Provisions for TDS and TCS
- TDS
The rate is 2% (1% CGST + 1% SGST or 2% IGST for inter-state supplies).
- TCS
The rate is 1% (0.5% CGST + 0.5% SGST or 1% IGST for inter-state supplies).
Effects of Failing to Deposit TDS or TCS
Failing to collect or deposit TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) can result in several consequences under Indian tax laws. The repercussions are:
- Interest on Late Payment
- TDS: 1% per month from the date the tax was deductible until the date it is actually deducted.
- TCS: 1% per month from the date the tax was collectable until the date it is actually collected.
- Penalty: The Assessing Officer may impose a penalty equal to the amount of tax that was not deducted or collected.
- Prosecution: Severe cases of non-compliance, such as willful neglect or fraudulent activities, can lead to prosecution. The punishment can range from rigorous imprisonment of three months to seven years, along with a fine.
- Late Fee: Failure to file TDS/TCS returns on time attracts a late filing fee of ₹200 for a day until the return is filed. However, the total fee cannot exceed the amount of TDS/TCS.
|
Latest News and Updates of TDS and TCS
The updated TDS rate chart for FY 2024-2025 includes various categories like salaries, interest payments, rent, commissions, and more to ensure compliance with tax laws and avoid penalties. Significant amendments were made in the Finance Bill 2024, including adjustments to TDS on PF withdrawals and clarifications on the place of supply for custodial services by Indian banks to Foreign Portfolio Investors.
A significant change announced in Budget 2023 was the hike in the TCS rate on foreign remittances under the Liberalised Remittance Scheme and for overseas tour packages went from 5% to 20% on amounts exceeding Rs 7 lakh. This change, which initially took effect in July 2023, was postponed to October 2023. Other notable decisions include exempting taxpayers with an annual revenue of up to Rs. 2 crore from filing specific GST forms and reducing the reporting threshold for B2C inter-state supplies from Rs. 2.5 lakh to Rs. 1 lakh. |
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.