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What is the difference between TDS and TCS?

TDS is the tax deducted from the business owner itself by any individual or company making a payment if the amount exceeds ₹50 lakh. TCS is the tax collected by the seller from the purchaser at the time of the sale transaction. Read ahead to know the diffe

  • 4,766 Views | Updated on: Mar 20, 2024

Two of the government’s most important revenue sources are Tax Deducted at Source (TDS) and Tax Collection at Source (TCS). Additionally, timely tax payments are essential for businesses to make to avoid fines and maintain compliance.

Read along to find out the TDS and TCS differences and the significance of each for different kinds of businesses.

What is TDS?

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.

What is TCS?

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 a number of noteworthy distinctions between TDS and TCS. Continue reading to learn the key distinctions between TDS and TCS.

Difference between TDS and TCS

Both TDS and TDC have very different roles in the business sector. Read ahead to know how the two are distinguished from each other.

Types

TDS

TDC

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.

Penalties for Non-Compliance

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.

Difference between TDS and TCS – Example

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.

Now, 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 to 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.

Conclusion

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 the amount of 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 the efficient and legal operation of your business. 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 one suits the best for your business.

    Key takeaways

    The key differences between TDS and TDC are

  • 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.
  • 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 Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

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.

Amit Raje
Reviewed By :
Prasad Pimple

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

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