Difference between TDS and TCS

The government collects taxes in the form of income tax, direct taxes, and indirect taxes. Direct taxes are paid to the government by individuals who earn money. Indirect taxes, on the other hand, are the seller’s responsibility to deposit with the government.

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are two examples of indirect taxes imposed by the government. These terms are sometimes used interchangeably. However, there is a distinction between TDS and TCS.

What is TDS (Tax Deducted at Source)?

TDS, or Tax Deducted at Source, is a type of indirect tax in which revenue is collected directly at the point of the recipient’s income. TDS is based on the concept of ‘pay as you earn’ and ‘collect when it is earned.’

According to the Income Tax Act, any payment subject to TDS must be made after a certain percentage is deducted. Section 194Q requires a company or individual to deduct tax when making a payment of more than 50 lacs for goods and services. This can include legal fees, technical services, rent, and so on.

The company or individual deducting TDS is known as the deductor in a TDS transaction, while the person receiving the payment is known as the deductee. With the TDS system in place, income tax is charged in advance rather than later, and the recipient receives tax-deducted income directly.

What is TCS (Tax Collected at Source)?

TCS, or Tax Collected at Source, is a tax imposed on goods by sellers and collected from buyers at the time of sale. The seller then transfers the tax collected to the government.

Section 206C of the Income Tax Act of 1961 lists the items on which TCS can be levied. Some of these items include wood, liquor, minerals such as lignite and coal, parking lots, toll plazas, and so on. TCS has a limit of Rs. 50 lacs on the sale of goods.

Example of TDS and TCS

Let us examine the distinctions between the two using an example:

Assume you work for a company and your salary is Rs. 20,000. The company will deduct a prescribed percentage of your salary in the form of TDS at the time of payment. Assume the applicable TDS is 5%. As a result, you will receive Rs. 19,000, with Rs. 1000 deducted at the source.

Assume you want to buy timber from a timber trader for Rs. 50,000. However, you will pay him a total of Rs. 52,000 (50,000 + 5% of 50,000). The Rs. 2,500 surplus is the TCS you will pay to the timber trader. You can claim a credit of Rs. 2,500 for the total tax liability when filing your ITR. This is referred to as TCS credit.

TDS and TCS are both levied at the point of payment’s origin. However, there are a few key differences between the two types of taxes:

Meaning

TDS is the tax deducted at the point of payment by any individual or company if the amount paid exceeds a predetermined threshold. TCS, on the other hand, is the tax collected from the buyer by the seller at the time of the sale.

Transactions Covered

TDS covers expenses such as interest, salaries, brokerage, commission, rent, and so on, whereas TCS is levied on the sale of goods such as timber, minerals, liquor, and toll plazas.

Limits

TDS is applicable on the purchase of goods if the amount exceeds Rs. 50 lacs, according to Section 194Q. TCS is applicable on the sale of goods if the amount exceeds Rs. 50 lacs, according to Section 206C (1H).

Rates

The TDS rate, i.e. the tax deduction rate for the purchase of goods and services, is 0.1% of the amount exceeding Rs. 50 lacs. TCS’s tax collection rate, i.e. for the sale of goods, is 0.1% of the sale amount exceeding Rs. 50 lacs.

Time of Deduction

TDS is deducted at the time of payment, whereas TCS is collected by the seller at the time of sale.

Person in Charge

TDS is deducted by the person or company making the payment, whereas TCS is collected by the person or company selling the goods.

Dates of Due

TDS deposits are due on the 7th of each month. TCS, on the other hand, is deposited to the government’s credit within ten days of the end of the month.

Failure to Deposit TDS or TCS with the Government

If the deductor or collector of taxes fails to pay TDS or TCS on time or fails to file their TDS or TCS correctly, they will face legal consequences under Section 271H. They may also face a fine of Rs. 10,000 to Rs. 1,000,000 for failing to deposit the taxes.

Furthermore, Section 201(1A) of the Income Tax Act requires the payment of 1.5% per month in the case of non-deduction of TDS or late TDS payments from the date on which tax was deductible. The interest rate charged for TCS calculations remains constant at 1%. Furthermore, the individual may be imprisoned for three to seven years.

It is critical for an individual or a business to meet their tax obligations on time. If TDS was deducted from your salary, you can get it back if you file your returns on time. If, on the other hand, you have collected TCS, you must ensure that it is deposited with the appropriate authorities.