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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
TDS is tax deducted at source from income, whereas TCS is tax collected at source during sale. Both TDS and TCS represent tax mechanisms in India.
Taxes are the main source of revenue for any country’s economy. The government collects two types of taxes: direct tax, which is levied on taxpayers’ income, and indirect tax, which is charged on goods and services. The government also collects other forms of revenue, such as customs duties on imported goods, excise duties on domestically produced goods, and property taxes. Tax Deducted at Source (TDS) and Tax Collection at Source (TCS) are two types of Indirect Taxes imposed by the government.
Read along to find out the TDS and TCS difference and the significance of each for different businesses.
Both TDS and TCS have very different roles in the business sector. There are certain differences between them; read ahead to know how the two are distinguished from each other:
| |
|
|
| Meaning |
Any business or person making a payment that exceeds the thresholds outlined in the relevant Sections must deduct tax at source (TDS). |
TCS is a tax that is gathered at the moment of sale by the seller. |
| Transactions Covered |
Interest, wages, brokerage, professional fees, commissions, purchases of products, 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. |
| Limits |
If the price of the items is greater than ₹50 lakhs, TDS is required under Section 194Q. |
TCS is applicable on the sale of goods under Section 206C (1H) if the price exceeds ₹50 lakhs. |
| Rates |
For purchases of goods, the tax deduction rate (TDS) is 0.1% of the amount over ₹50 lakhs. |
For the sale of products, the tax collection rate (TCS) is 0.1% of the selling amount over ₹50 lakhs. |
| Person Responsible |
TDS must be subtracted by the person (or business) making the payment. |
The person (or business) selling the specified products is responsible for collecting TCS. |
A business or individual must withhold tax at the source from payments made for the purchase of goods and services, such as rent, consultation fees, legal costs, royalties, technical services, etc., that exceed ₹50 lakhs, according to Section 194Q of the Income Tax Act.
According to the Income Tax Act, the government predetermines the TDS rates. The deductor and deductee are the parties involved in a TDS transaction. TDS is withheld from the payment by the deductor, who is also known as the deductor.
A tax known as Tax Collected at Source, or TCS, is levied on goods by the seller and is paid by the purchaser at the time of purchase. The goods and services that TCS covers are listed in Section 206C of the Income Tax Act of 1961. TCS has a threshold of ₹50 lakhs for the selling of commodities.
Although both taxes are imposed at the source of the revenue or payment, there are several noteworthy distinctions between TDS and TCS.
Under Section 271H, the deductor/collector may be fined for failing to submit their TDS/TCS returns on time and accurately. The deductor/collector can be fined a minimum of ₹10,000 and a maximum of ₹1,00,000 for filing an incorrect TDS/TCS return. Also, Section 201(1A) of the Income Tax Act mandates an interest of @1.5% per month applicable for non-deduction of TDS from the date on which tax was deductible to the date on which tax is deducted.
In case of late TDS payments, the same interest of 1.5% will apply from the deduction date to the payment date.
Suppose you are an employee at a company where your salary is ₹20,000. At the time of your salary payment, the company will deduct a prescribed percentage from your salary as a TDS. Let’s say the TDS applicable is 5%. You will, hence, receive ₹19,000, and your tax deducted at the source will be ₹1000.
Suppose you want to purchase timber from a timber trader for ₹50,000. But you will pay him a total amount of ₹52,000 (50,000 + 5% of 50,000). The surplus ₹2,500 is the TCS you will pay the timber trader. While filing your ITR, you can claim a credit of ₹2,500 for the total tax liability. This is known as TCS credit.
TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are mechanisms used in India’s Goods and Services Tax (GST) system to ensure tax compliance and improve tax collection efficiency. Let us take a look to know how the two are distinguished from each other.
| |
|
|
| Purpose |
TDS deducts a certain percentage of the payment made to a supplier and is deducted by the recipient before making the payment. |
TCS is a mechanism where a certain percentage of the sale amount is collected by the seller from the buyer at the time of the sale. |
| Deduction |
TDS is deducted by the person making the payment |
TCS is collected by the seller of goods or services. |
| Filing quarterly statements |
Form 24Q (in case of salaries), Form 26Q (for others except salaries), and Form 27Q (for payments to NRIs). The returns have to be submitted quarterly. |
Form 27EQ.The returns have to be submitted quarterly. |
| Nature |
TDS is a withholding tax mechanism. |
TCS is a collection tax mechanism. |
Keeping track of all your taxes is essential. If TDS was deducted from your income, you are eligible for a refund if your tax returns are submitted on time. Just think about how much money you would miss out on by failing to file returns for each transaction. If you have collected TCS, it should be your top priority to deposit it with the appropriate authorities to ensure your business’s efficient and legal operation.
You can reduce your taxes as an individual by using other strategies like tax deductions from investments in life insurance, mutual funds, and other tax-avoidance tools. Now that you know the difference between TDS and TDC, understand which suits your business best.
1
The seller is responsible for collecting TCS from the buyer at the time of the sale of specific goods such as alcoholic beverages, tendu leaves, forested goods, and more.
2
TDS is applicable in transactions like rent, salary, commission, interest, professional fees, etc.
3
The government determines TDS and TCS rates outlined in the GST laws and notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).
4
Due dates for TDS and TCS are:
| TDS Due Date for FY 2024-25 | ||
Quarter |
Period |
Last Date of Filing |
1st Quarter |
1st April to 30th June |
31st July 2024 |
2nd Quarter |
1st July to 30th September |
31st October 2024 |
3rd Quarter |
1st October to 31st December |
31st Jan 2025 |
4th Quarter |
1st January to 31st March |
31st May 2025 |
TCS Due Date for FY 2024-25 | ||
Quarter |
Period |
Last Date of Filing |
1st Quarter |
1st April to 30th June |
15th July 2024 |
2nd Quarter |
1st July to 30th September |
15th October 2024 |
3rd Quarter |
1st October to 31st December |
15th Jan 2025 |
4th Quarter |
1st January to 31st March |
15th May 2025 |
5
Yes, there are exemptions and thresholds for both TDS and TCS. TDS exemptions vary based on payment type (salary, rent, etc.) and recipient status. For instance, TDS on salary might have a basic exemption limit. TCS generally has a threshold limit, meaning tax is collected only if the transaction value exceeds a certain amount.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
