What Is The Difference Between TDS and TCS?

Have you ever received any income from investments and realized it was slightly less than anticipated? Did you discover that a charge was added to your account while paying bills that needed clarification? If so, don’t worry; we’ll cover such hidden charges. Read the blog to learn the distinctions between Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).

Overview of Tax Deducted at Source

TDS or Tax Deducted at Source is an indirect tax charged on the amount a recipient receives as income. In this method of collecting tax, the payer deducts a specific tax percentage on the income earned by the payee, and the deduction is made at the time of payment. The deducted amount is then paid to the government on behalf of the payee.

It applies to various incomes, such as salaries, interest, professional fees, rent, etc. The rate of TDS depends on the nature of income as the rate can differ for different types of income.

Features of TDS

1. It applies to various types of payments such as interest earned, salaries, dividends, etc.
2. The tax deductor provides a TDS certificate in which the details like income, and tax deducted are mentioned.
3. The deductor is required to file the return periodically, if the deductor is not able to file the return they will be liable to pay penalties.
4. The tax rate depends on various incomes; for example, the TDS rate for salary income can differ from the TDS rate on interest income.

Examples of TDS

Let’s say a company hires a professional freelancer and provides him with a monthly compensation of INR 1,00,000. The tax rate provided under the Income Tax Act under section 194J to deduct TDS on professional service is 10%. Hence, the TDS amount will be 10% of INR 1 Lakh, which comes to 10,000, and the final payment received by the professional will be 90,000 after the deduction of TDS.

In this case, the company must deposit INR 10,000 with the government authorities.

Overview of Tax Collected at Source

TCS is a method through which the seller collects a specific tax amount from the purchaser of goods at the point of sale, and the collected tax is then deposited with the income tax authorities. It comes under the goods listed under section 206C of the Income Tax Act 1961.

This tax exists on specific transactions like purchasing alcohol, selling motor vehicles above a particular value, selling overseas tour packages, etc. The tax rates depend upon the nature and type of goods and services. The collector of tax provides a TCS certificate to the buyer which has the details like the amount of tax collected and deposited with the government.

Features of TCS

1. This tax is collected by the seller from the buyer of goods and services.
2. It applies only to specific goods, not to all goods.
3. It generally charges a flat rate on the value of goods and the rate is fixed by the government.
4. The seller of the goods must deposit the tax to the concerned branches of the authorized banks.  

Example of TCS

Let’s suppose a scrap dealer who is engaged in selling scraps to manufacturing companies sold scrap material for INR 1,00,000. The applicable TCS rate is 1% on the sale of scrap. Then the TCS amount will come to 1000, calculated as 1% of 1 Lakh. Therefore, the seller needs to collect a total of 1,01,000 from the manufacturing company and then deposit 1,000 to the government as the TCS amount.

Differences Between TDS and TCS

Particulars	TDS	TCS
Duration	TDS is collected when the payment is due or made.	TCS is collected at the time of sale.
Deducted By	Companies or Individuals making the payment.	Businesses or individuals selling the goods and services.
Section	It is governed by Sections 192 to 196D of the Income Tax Act 1961.	It is covered under section 206 C of the Income Tax Act 1961.
Applicability	Applies to incomes such as salaries, interest, commissions, etc.	It applies to the sale of certain specified goods.
Forms for filing returns	The returns are filed quarterly on forms 24Q and 26Q.	It is filled on form 27EQ.
Date of Payment of Tax to Government	The due date for depositing TDS is the 7th of every month and returns are to be submitted quarterly.	TCS should be deposited within 10 days from the end of the month of supply to the government credit.

Consequences of Not Depositing TDS or TCS

The deductor or the collector of the taxes will face legal consequences if they fail to deposit TDS or TCS collected on time. The Income Tax Act makes it mandatory to pay an interest of 1.5% per month in case of non-deduction of TDS or late payment of TDS, and for TCS, the penalty rate is 1%.

Conclusion

On a concluding note, understanding the concept of TDS and TCS is essential for individuals and business houses, as it is suggested that you track all your taxes. If any excess taxes have been deducted from your income, you can get a refund while filing an income tax return. On the other hand, if you have collected the TCS amount, you must deposit the tax with the concerned authorities. Also, you should consult with your tax advisor or consultant when filing income tax returns. 

Frequently Asked Questions (FAQs)