Difference Between TDS & TCS

The government of India recovers taxes in the form of direct taxes such as Income Tax and indirect taxes such as Goods and Services Tax (GST). TDS and TCS are two modes of tax collection. To enable the government to earn cash inflow to carry out its various expenditures , both TDS and TCS were introduced to collect tax from the same source of income during a financial year. It also helps the government to minimize tax evasion. Although most people use these terms interchangeably, there's a significant difference between the two. 

Read more
Best Tax Saving Plans
  • High Returns

    Get Returns as high as 15%*
  • Zero Capital Gains tax

    unlike 10% in Mutual Funds
  • Save upto Rs 46,800

    in Tax under section 80 C

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Get Instant Tax Receipts
Save upto ₹46,800 in Taxes Under Section 80C
+91
View Plans
Please wait. We Are Processing..
Plans available only for people of Indian origin By clicking on "View Plans" you agree to our Privacy Policy and Terms of use #For a 55 year on investment of 20Lacs #Discount offered by insurance company Tax benefit is subject to changes in tax laws
Get Updates on WhatsApp

What is TDS?

As per Income Tax Act, 1961, any individual or entity shall deduct tax at source at the time of payment for the purchase of goods (e.g., real estate) or services (e.g., salary, rent, professional fees, contractual expenses, royalty, technical assistance, etc.) or interest (e.g., interest on fixed deposit), if the payment amount breaches a pre-notified threshold amount. This is TDS or Tax Deducted at Source.

Where TDS is applicable, the individual or entity deducting tax is known as the deductor, while the individual or entity receiving the payment is known as the deductee. With the TDS system in place, the tax on income gets collected in advance during a financial year rather than at the end of a financial year when the recipient files income tax returns.

What is TCS?

It is a tax collected by the seller at the time of sale of specified goods to a buyer. Section 206C (1H) of the Income Tax Act, 1961 stipulates the goods and services applicable to TCS. As per this section, a seller whose turnover is above Rs 10 crore should collect tax when he/she receives more than Rs 50 lakh from one buyer during a financial year. Please note that TCS should be collected at the time of receipt of the sale amount. However, if the buyer has deducted tax as per any other provisions of the Income Tax Act, 1961 on the goods purchased by him/her from the seller, then the seller is not required to collect tax on such dealings. This denotes TCS or Tax Collected at Source.

The sale of goods does not cover:

  • Export of goods such as tendu leaves, forest produce, alcohol, and scrap – under Section 206C (1)

  • Export of motor vehicles – under Section 206C (1F)

  • Foreign remittance – under Section 206C (1G)

TCS is not required to be deducted if the buyer is a Central Government employee, State Government employee, employee at High Commission, Embassy, Local Authority, Consulate, etc. This provision also does not apply to imports.

What Is The Difference Between TDS And TCS?

Although both tax collection methods are levied at the point of origin of income or payment, there are significant differences between the two.

  1. Meaning

    TDS denotes tax deducted at source by any individual or entity while making a payment if the payment exceeds the threshold amounts mentioned as per applicable provisions of the Income Tax Act. TCS denotes tax that has to be collected by the seller at the time of sale.

  2. Transactions Covered

    TDS is applicable on salaries, interest, professional fees, rent, contractual payments, etc. TCS applies to the sale of scrap, timber, liquor, minerals, forest produce, cars, tendu leaves, and toll tickets.

  3. Threshold Limits & Rates

    Under Sections 192 to 194Q of the Income Tax Act, TDS applies to payments made towards various services upon breach of different threshold levels at rates mentioned in the following table:

    Section Nature of Payment Threshold (Rs.) Individual/ HUF Others
    TDS Rate (%) TDS Rate (%)
    192 Salaries As per the employee's declaration
    192A Premature withdrawal from EPF 50000 10
    193 Interest on securities 10000 10 10
    194 Dividends 5000 10 10
    194A Interest (Banks) 40000 10 10
    194A Senior citizen 50000 10
    194C Single contractor payment 30000 1 2
    194C Aggregate contractor payment 1 Lakh 1 2
    194D Commission on insurance (15G-15H allowed) 15000 5 10
    194DA The policy of life insurance 1 Lakh 1 1
    194EE NSS 2500 10 10
    194F MFs Repurchase units 20 20
    194G Lottery commission 15000 5 5
    194H Brokerage / Commission 15000 5 5
    194I(a) Rent of Plant / Equipment/ Machinery 2.40 Lakh 2 2
    194I(b) Rent of Furniture & Land Building 2.40 Lakh 10 10
    194IA Transfer of some immovable property except agricultural land 50 Lakh 1 1
    194IB Rent by HUF / Individual (w.e.f 01.06.2017) 50000/PM 5
    194IC Payment under certain agreements applicable for F.Y: 2017-18 onwards 10 10
    194J (a) Fees-tech services, royalty, call center, for sale, etc. 30000 2 2
    194J (b) Fee for royalty or professional service etc. 30000 10 10
    194K Dividends payment by mutual funds 5000 10 10
    194LA Transfer compensation of certain immovable property except for agricultural land 2.50Lakh 10 10
    194LA Immovable property (RFCTLARR Act exempts TDS) (w.e.f 01.04.2017)
    194LB Infrastructure debt fund income (non-resident) 5 5
    194LBA Business trust income (applicable from 01.10.2014) 10 10
    194LBA Business trust to non-resident income (applicable from 01.10.2014) 5 5
    194LD Interest on some Govt. securities and bonds (from 01.06.2013) 5 5
    194M Payment to commission or brokerage by individual & HUF 50 Lakh 5 5
    194N During the preceding year, cash withdrawals from one or more bank or cooperative society accounts totaled more than one crore (w.e.f 01.09.2019) 1 Cr 2 2
    1940 TDS on e-commerce participants 5 Lakh 1% (01.10.2020) 1% (01.10.2020)
    194Q Purchase of Goods 50 Lakh 0.10% (01.07.2021) 0.10% (01.07.2021)
    See More Plans

    Under Section 206C, TCS is applicable on the goods sale if the amount is more than ₹ 50 lakh @ 0.1% of sale consideration.

  4. Time of Deduction/ Collection

    TDS is applicable whenever an amount is due or paid, whichever is earlier. On the other hand, the seller collects TCS at the time of sale.

  5. Person Responsible

    TDS is to be deducted by the individual or entity making the payment. TCS is to be collected by the individual or entity selling the specified goods.

  6. Due Dates

    The due date for depositing TDS is the 7th of the following month, and TDS returns have to be submitted every quarter. TCS shall be deducted in the month in which the supply of goods is made and deposited in the designated banks of the government within ten days from the end of the month of goods supply.

  7. Filing of Quarterly Statements

    There are three different returns to be filed for TDS - Form 24Q (about salaries), Form 26Q (about other than salaries), and Form 27Q (remittances to NRIs). For TCS, there is a single quarterly return in Form 27EQ.

Unavailability of PAN

As per Income Tax Act's section 206 AA, those who do not give PAN - Permanent Account Number to the person making the payment, will be charged TDS at the following higher rates:

  • The rate specified in the corresponding provision of the Act or

  • 20%

As per Section 206CC, anyone paying an amount liable to TCS shall provide their PAN to the person collecting the tax. If not, the tax will be collected at the higher of the following rates:

  • Twice the rate specified in the corresponding provision of this Act or

  • 5%

Difference Between TDS And TCS – Example

PNR Group Ltd. pays ₹ 50,000 rent per month for their office space. Their annual rent amounts to ₹ 6 lakh. This amount is more than the TDS non-deduction limit of Rs 2.4 lakh. Therefore, PNR Group Ltd. shall deduct TDS @ 10%, i.e., ₹ 5,000 per month, and pay ₹ 45,000 per month as rental payment.

The owner of the office space will declare gross income as ₹ 6.00 lakh and claim TDS of ₹ 60,000 (previously deducted) as a total tax obligation credit, known as the TDS credit, on his or her annual income tax return.

Penalties for Non-Compliance

As the case may be, the deductor or the collector of the taxes is liable to face legal consequences for any delay in deposit of TDS or TCS or the filing of TDS or TCS details as per provisions of Section 271H. A fine ranging from an ₹ 10,000 to ₹ 1,00,000 may be imposed as a failure to deposit the taxes.

Further, as per Section 201(1A) of the Income Tax Act, it is mandatory to pay an interest @ 1.50% per month in case of non-deduction of TDS or late deposit of TDS - from the date on which TDS was deductible. For TCS, the rate of interest levied is 1.00% for any delay in the deposit of TCS. Additionally, the individual may also be imprisoned for 3 to 7 years.

It is essential for an individual or a company to accomplish their tax obligations on time. If excess TDS has been deducted from your income, you can get it refunded, provided you file your income tax returns on time. On the other hand, you should ensure that the collected TCS is deposited with the government-designated banks on time if you have collected TCS.

FAQ's

  • Q1. Is TCS refundable?

    Ans: As per the Income Tax Act, TCS can be refunded to the buyer of the goods provided the buyer discloses the income in the income tax return and which is filed on time.
  • Q2. Would TCS and TDS be applicable on the same transaction?

    Ans: No, if the buyer is liable to deduct TDS on a transaction, then TCS is not applicable.
  • Q3. Would the sale of services be considered for calculating the supplier's threshold limit of Rs.10 crore?

    Ans: As per provisions of Section 206C (1H), the total turnover of the business shall be considered in determining the threshold limit of Rs.10 crore. This means that the sale of services shall also be considered for this purpose.
  • Q4. Would TCS apply to SEZ units?

    Ans: An SEZ unit's sales are regarded as presumed exports. TCS, on the other hand, is applicable if the amount received from a buyer is more than Rs.50 lakh in a financial year.
  • Q5. Does the payee have the option to request the payer not to deduct tax at the source and to pay the amount without any deduction?

    Ans: A payee may approach the payer for non-deduction of tax at the source. For this, they have to furnish a declaration in Form No. 15G (15H of senior citizen) to the payer to show that income tax on his/her estimated total income of the year will be nil.
Tax Saving Investment
Save Tax Under Section 80C

Income Tax articles

Recent Articles
Popular Articles
Income Tax Above 10 Lakh

10 Jun 2022

Every year on the 1st of February, the Government of India...
Read more
Investment Declaration with Form 12BB

08 Jun 2022

Tax planning is vital for salaried individuals to streamline...
Read more
NPS Tax Savings

08 Jun 2022

NPS or National Pension Scheme is a voluntary pension plan...
Read more
How is Short-Term Capital Gains Tax Calculated on Shares?

08 Jun 2022

Any property or security in your name is a capital asset for...
Read more
How to Save TDS on Interest with Form 15G and 15H?

08 Jun 2022

Fixed deposits are the safest investment vehicles for most...
Read more
Tax Saving Investments
Tax Saving Investments are an integral part of one’s life as they offer tax deductions under section 80C or...
Read more
Income Tax Above 5 Lakh
Income tax is the tax levied on the income earned by an individual through any source and hence is taxable in the...
Read more
Cost Inflation Index
We all have read in the school books, never took it seriously as a child, and now it has become the most...
Read more
Gratuity Eligibility Before and After Completion of 5 Years
An employee is a person who is hired by an organization to work in a specific field that they have expertise in...
Read more
SBI PPF Calculator
Public Provident Fund or PPF is a complete Government-backed investment scheme offered to all individuals, both...
Read more
top
Close
Download the Policybazaar app
to manage all your insurance needs.
INSTALL