TDS vs TCS| Understand the Difference Between TDS and TCS

Are you one of those individuals who is often confused when someone at your office or in your friend circle begins talking about TDS or TCS? These two types of tax systems seem to confuse most of us. TDS means Tax Deducted at Source, and TCS means Tax Collected at Source, but what exactly is the key difference between TDS and TCS?

Let us understand TDS vs TCS today.

TDS vs TDS

Income tax isn’t the only way the government collects funds. It also gathers indirect taxes like TDS, TCS, and GST. These taxes are added to goods, services, and transactions we purchase. Two common types of indirect taxes that are often mixed up are TDS and TCS.

TDS means Tax Deducted at Source, and TCS means Tax Collected at Source, but what exactly is the key difference between TDS and TCS?

Let us take a look!

What is TDS?

TDS full form is Tax deducted at Source. 

The Indian government uses TDS to collect income tax at the time income is earned. When companies or individuals make certain payments, such as salaries or rent, they are required to deduct a small portion of it as tax and remit it directly to the government. This ensures timely tax payments and helps reduce tax evasion.

TDS applies to different types of income:

1. Salary
2. Interest from bank deposits
3. Commission
4. House rent
5. Dividends above a certain amount.

Types of TDS

In India, TDS, or Tax Deducted at Source, simplifies income tax collection by deducting a portion at the time of payment or credit. 

Here are the main types:

• Salary TDS: Employers deduct tax based on income tax slab rates.

• Interest TDS: Financial institutions deduct tax on interest exceeding a threshold.

• Property TDS: Tax deducted on property transfer payments exceeding a limit.

• Professional Fees TDS: Deduction from payments to professionals like lawyers and doctors.

• Dividend TDS: Companies deduct tax on dividends to shareholders.

TDS Payment Due Date for Filing of Quarterly TDS Statements

The TDS payment due date for submission Of Quarterly Statements is as follows:

Quarter Ending	TDS Returns
June 30	July 31
September 30	October 31
December 31	January 31
March 31	May 31

What is TCS?

TCS full form is a tax collected at the source!

TCS is a tax that sellers in India add to the cost of certain goods and services when they sell them. It’s like a small extra charge that buyers pay, which the seller then gives to the government. This helps the government collect taxes early and prevents people from avoiding tax payments.

When we talk about the difference between TDS and TCS, there is indeed a huge difference.

So, TCS is a way for the government to collect tax rights when you buy certain things, ensuring they get their share of tax from different transactions.

TCS Payment Due Dates for Filing of Quarterly TCS Statements

The TCS payment due dates for filing quarterly TCS returns are as follows: 

Quarter Ending	Quarterly TCS Returns
June 30	July 15
September 30	October 15
December 31	January 15
March 31	May 15

Difference Between TDS and TCS

Let us understand TDS (Tax Deducted at Source) vs. TCS (Tax Collected at Source)

1. TDS vs TCS- Meaning
   • TDS: TDS is a tax deducted from income before it is received by the recipient.
   • TCS: TCS is a tax collected by the seller at the time of sale of certain goods.
2. TDS vs TCS: Who Acts
   • TDS: Employers, banks, or entities making payments deduct TDS.
   • TCS: Sellers of specified goods collect TCS.
3. TDS vs TCS: Purpose
   • TDS: Ensures that taxes are paid throughout the year, avoiding a large tax burden at year-end.
   • TCS: Helps track transactions and ensures sellers’ tax compliance.
4. TDS vs TCS: Applicability
   • TDS: Salaries, rent, fees, commissions, interest, dividends, lottery or gambling wins, prizes, insurance commissions, and payments to contractors. 
   • TCS: Timber, scrap, mineral ore, e-commerce products, foreign currency sales, and remittance payments. 
5. TDS vs TCS: Claim of Return
   • TDS- The payee can claim credit for the TDS amount deducted while filing their income tax return.
   • TCS- The buyer can claim credit for the TCS amount paid while filing their income tax return.

The difference between TDS and TCS is simple.

TDS deducts tax from your income before it reaches you, while TCS involves collecting tax by sellers during specific transactions. 

Both of these indirect taxes aim to ensure tax compliance. However, they operate at different stages of income and sales transactions in India.

TDS and TCS Difference| Quick Overview

Here is a brief overview of the difference between TDS and TCS:

Feature	TDS (Tax Deducted at Source)	TCS (Tax Collected at Source)
Meaning	Tax deducted from payments made to the payee.	Tax collected by the seller from the buyer at the point of sale.
Point of deduction/collection	Deducted by the payer before making payments to the payee.	Collected by the seller from the buyer during the sale transaction.
Applicability	Applicable to various payments like salaries, interest, rent, etc.	TCS applicability is for specific sales like bullion, scrap, luxury cars, etc.
Purpose	Ensures tax collection at the source to prevent tax evasion.	Ensures tax collection at the time of sale to facilitate tax compliance.
Submission of tax	Deductor submits TDS to the government on behalf of the payee.	The seller submits the TCS to the government after collecting it from the buyer.
Claiming credit	The payee can claim credit for the TDS amount deducted.	Buyer can claim credit for the TCS amount paid.

What are TDS and TCS with Examples?

Let us understand the difference between TDS and TCS with an example:

TDS Example

When your boss pays your salary, he keeps aside a part of it as tax and sends it to the government on your behalf.

You can claim any amount deducted as TDS from your salary while filing your ITR returns!

TCS Example

Let us say you purchase a car from a showroom priced at Rs. 12 lakh; the showroom collects TCS at 1%, which amounts to Rs. 12,000. This means the total amount to be paid by you is Rs. 12,12,000 (Rs. 12,00,000 + Rs. 12,000).

However, you can claim this amount when filling out your ITR returns!

TDS vs TCS in GST

Under the Goods and Services Tax (GST) system, TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) play important roles in collecting taxes.

TDS under GST applies to the payments made for business contracts, especially involving the government or certain specified persons. If the payment for goods or services exceeds Rs. 2.5 lakhs, the payer has to deduct a certain percentage of tax (usually 2%) and send it to the government.

TCS under GST is important for online sellers.

When a seller sells goods or services through an online platform, and the platform collects the payment, it has to collect a certain percentage of tax (usually 1%) from the payment and send it to the government.

Consequences of Failing to Deposit TDS or TCS

What happens if you don’t collect or deposit tax? 

Failing to follow TDS or TCS rules can lead to serious outcomes:

1. Interest: You’ll be charged interest on the tax amount not deducted, collected, or deposited on time. 
2. Penalty: Penalties equivalent to the tax not deducted or collected may be imposed. However, the Assessing Officer might waive the penalty for valid reasons.

Is TCS Refundable?

TCS can be refunded if you’ve paid more tax than you owe or if the collected tax surpasses the applicable rate. You can claim a refund by filing your income tax return and indicating the TCS amount as prepaid tax. 

The income tax department will process the refund after verifying the TCS details with the seller.

However, if you don’t have taxable income or have already used the TCS benefit against your tax liability, you can’t claim a TCS refund.

Are TDS and TCS Applicable to the Same Transaction?

TDS and TCS do not simultaneously apply to the same transaction.

 If a transaction falls under both TDS and TCS rules, only one will be applicable. 

TDS takes precedence over TCS, with a few exceptions. 

For example, when you buy a motor vehicle worth Rs. 15 lakh from a dealer, both TDS (if the dealer’s turnover exceeds Rs. 10 crore) and TCS (if your turnover exceeds Rs. 10 crore) may apply. 

However, in this case, only TDS applies at 0.1%, and the seller collects no TCS. 

But if you purchase scrap worth Rs. 60 lakh from a dealer, both TDS and TCS may apply due to a specific provision. Here, TDS is 0.1%, and TCS collection occurs without considering TDS provisions.

Conclusion

In summary, while both TDS and TCS are methods of collecting taxes at the source, the TDS and TCS difference lies in their application, purpose, and the point of the tax deduction or collection.

FAQs| Difference Between TDS and TCS

Source- https://www.incometaxmumbai.gov.in

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