Explore the Key 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.

What is TDS?

TDS full form is Tax deducted at Source. 

TDS, or Tax Deducted at Source, is like a way for the government to collect taxes in advance. When you earn money, like from your salary or interest on investments, the company or person paying you might deduct a certain amount of tax from that money before giving it to you.

They then send that deducted tax amount to the government on your behalf.

What is the purpose of TDS?

TDS is basically a system to make sure that people pay their taxes on time and correctly, without waiting until the end of the year.

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 Rate Chart for FY 2024-2025

Section	Nature of Payment	Threshold Limit (INR)	Rate of TDS
192	Salary	–	As per the employee’s chosen tax regime
192A	Premature EPF withdrawal	50,000	10%
193	Interest on securities	2,500	10% if you provide PAN and 20% without PAN card.
194	Dividend	5,000	10%
194A	Interest (excluding securities)	Senior Citizens: 50,000 Others: 40,000 Deposits: 5,000	10%
194B	Lottery/Crossword winnings	10,000	30%
194C	Contractor Payments	30,000 (Single) 1,00,000 (Aggregate)	Individuals/HUF: 1% Others: 2%
194D	Insurance Commission	15,000	Individuals: 5% Company: 10%
194DA	Life Insurance Payments	1,00,000	5%
194E	Non-Resident Sportsmen Payments	–	20%
194EE	NSS Deposit Payments	2,500	10%
194F	Mutual Fund Repurchases	–	20%
194G	Lottery Ticket Commissions	15,000	5%
194H	Commission/Brokerage	15,000	5%
194-I	Rent	2,40,000	Plant/Machinery: 2% Others: 10%
194-IA	Immovable Property Transfer Payments	50 Lakhs	1%
194-IB	Rent by Individuals/HUF	50,000 per month	5%
194-IC	Joint Development Agreement Payments	–	10%
194J	Professional/Technical Services Fees	30,000	Technical Services: 2% Others: 10%
194K	Specified Unit Income	5,000	10%
194LA	Compensation for Immovable Property	2,50,000	10%
194LB	Infrastructure Debt Fund Income	–	5%
194LBA	Business Trust Unit Income	–	10%
194LBB	Investment Fund Unit Income	–	10%
194LBC	Securitization Trust Income	–	Individuals/HUF: 25% Others: 30%
194LC	Indian Company/Business Trust Interest	–	5%
194LD	Specified Bonds/Government Securities	–	5%
194M	Certain Payments	50 Lakhs	5%
194N	Cash Withdrawal Payments	20 Lakhs (non-filers) 1 Crore (others)	Exceeding 20 Lakhs: 2% Exceeding 1 Crore: 5%
194-O	E-commerce Operator Payments	5 Lakhs	1%
194P	Senior Citizen Tax Deduction	–	As per applicable rates
194Q	Goods Purchase Payments	50 Lakhs	0.10%
194R	Business/Profession Perquisites	20,000	10%
194S	Virtual Digital Asset Transfers	Specified Person: 50,000 Others: 10,000	1%
206AA	PAN Not Furnished	–	At specified rates or 20%
206AB	Non-filers TDS Deduction	–	Twice specified rates or 5%

Due Dates for Filing of Quarterly TDS Statements

The TDS due date is as follows:

Quarter Ending	TDS Due Date
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, or Tax Collected at Source, is a bit different from TDS.

Instead of deducting tax from your income, TCS happens when you buy certain things. These could be gold, luxury cars, or expensive goods. When you buy these items, the seller collects a little bit of tax from you on the sale amount and then sends that tax to the government.

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

Due Dates for filing of Quarterly TCS Statements:

Quarter Ending	TCAS Due Date
June 30	July 15
September 30	October 15
December 31	January 15
March 31	May 15

Difference Between TDS and TCS

Tax Deducted at Source (TDS)

TDS is a system wherein the payer deducts tax from the point of the source from payments made to the payee.

• It is applicable to various types of payments such as salaries, interest, commission, rent, etc.
• The deducted tax amount is then deposited with the government on behalf of the payee.
• TDS ensures that the tax collection is in advance and prevents tax evasion.
• The payee can claim credit for the TDS amount deducted while filing their income tax return.

Tax Collected at Source (TCS)

• TCS, on the other hand, is the tax collected by the seller from the buyer at the time of sale of certain specified goods.
• The seller collects TCS while receiving payment from the buyer.
• TCS is applicable to the sale of items like scrap, timber, minerals, bullion, etc.
• Like TDS, the seller deposits the collected tax amount with the government.
• The buyer can claim credit for the TCS amount paid while filing their income tax return.

Key Difference Between TDS and TCS

Here is a brief overview of the differences 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.	Applicable to 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 TCS to the government after collecting from the buyer.
Claiming credit	Payee can claim credit for the TDS amount deducted.	Buyer can claim credit for the TCS amount paid.

This table provides a quick overview of TDS vs TCS.

TDS vs TCS| Example

TDS (Tax Deducted at Source) vs TCS (Tax Collected at Source)

TDS:

When you earn money, like your salary or interest from the bank, the concerned authority deducts a portion of that money before you get it.

So, TDS is like a way to collect tax directly from your income before you receive it.

Example

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

TCS:

When you buy certain things, like gold or expensive items, the seller collects a bit of tax from you right there and then. This tax is sent to the government by the seller. So, TCS is like a tax collected by the seller from you when you make a big purchase.

Example

Let’s say you’re a wholesaler selling electronic gadgets. You sell a smartphone to a retailer for INR 10,000. As per government regulations, you’re required to collect TCS at the rate of 0.1% from the retailer.

So, you collect INR 10 as TCS from the retailer (0.1% of INR 10,000) and then submit this amount to the government on behalf of the retailer. After deducting the TCS, the retailer pays you INR 9,990 for the smartphone.

Note- These are just hypothetical examples to illustrate the difference between TDS and TCS in India.

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.

Understanding Tax Deduction and Collection: Income Categories and Transactions

Which income categories get taxed or have money taken out beforehand? TDS covers various sources like salaries, rent, fees, commissions, interest, dividends, lottery or gambling wins, prizes, insurance commissions, and payments to contractors. On the flip side, TCS applies to specific goods and services such as timber, scrap, mineral ore, e-commerce products, foreign currency sales, and remittance payments. Here’s a clearer breakdown:

TDS:

• Salary
• Rent
• Professional fees
• Brokerage
• Commission
• Interest
• Dividend
• Lottery winnings
• Gambling winnings
• Prize money
• Insurance commission
• Payments to contractors

TCS:

• Selling timber
• Selling scrap
• Selling mineral ore
• Selling e-commerce products
• Selling foreign currency
• Payments for remittances

Keep in mind that the list of goods and services under TCS might change over time.

TDS and TCS| Benefits to Government

Implementing TDS and TCS under GST offers several advantages to the government:

• Better Compliance: TDS ensures that various entities, especially those dealing with government contracts, follow tax rules properly.

• Simplified Tax Collection: TCS helps regulate online sellers, making it easier to collect taxes on time and accurately.

• Fraud Prevention: Both TDS and TCS mechanisms help prevent tax evasion and fraud, making the tax system stronger.

Some Tax Saving Strategies That You Must Know

There are various strategies and financial products that offer tax-saving benefits:

• Investing in ELSS

Equity-Linked Savings Schemes (ELSS) are mutual funds that offer tax benefits under Section 80C of the IT- Income Tax Act, allowing deductions up to Rs. 1.5 lakhs.

• Life Insurance Plans

Premiums paid towards life insurance policies usually qualify for tax deductions under Section 80C.

Check out the top 10 insurance companies in India.

• National Pension System (NPS)

Contributions to NPS are deductible under Section 80CCD(1B), providing an additional deduction of Rs. 50,000 over and above the Rs. 1.5 lakh limit under Section 80C.

These strategies not only help in saving taxes but also encourage individuals to invest in financial products that help build long-term wealth.

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 donot 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.

How to Pay TDS and TCS

Paying TDS and TCS is easy, with online and offline options available. You can make online payments using the income tax department’s e-payment facility. Simply fill out Challan ITNS 281 with the necessary details and select your bank for payment.

Alternatively, you can pay TDS and TCS offline by visiting an authorised bank branch with a completed Challan ITNS 281 form and paying in cash or by cheque.

Conclusion

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

FAQs| Difference Between TDS and TCS

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

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.