Difference between TDS & TCS

Hello Everyone, in this post we are going to see what is TDS as well as TCS and the difference TDS and TCS in a nutshell. We will cover the following topic:

What is TDS?

TDS section in the Income Tax is known as Tax deducted at source. So, this concept can be termed as a buyer end activity.

Any company or individual (deductor) making a payment to other entity (deductee) then has to deduct tax at source if it crosses a specific threshold limit. Therefore, this tax amount is to be paid to the government by the deductee.

Every payment does not invite TDS as there are some requirements to meet. Accordingly, the TDS deduction rate is fixed by the Income Tax department.

Now let us see some examples for TDS:

  • Mr X is a full-time employee of Mad.in Private Limited. He receives a monthly salary. Mad.in Private Limited deducts some amount of tax from his monthly salary before paying it to him. The deducted amount from the salary of X before payment of salary is the TDS.
  • Mr D sells services/products to Mr E for Rs.4000 (tax rate-5%) So, Mr E has to pay Rs.3800 to Mr D and balance Rs.200 will be paid to the Government.

List of TDS rates

You can also view the government-approved TDS tax rate for further information here.

What is TCS?

TCS section in the Income Tax is also known as Tax Collected at Source. So this concept can be termed as seller end activity.

The tax is collected by the seller of specified goods, from the buyer of the goods at the time of sale.TCS is collected as per the standard rate on specific goods as declared by the government and then it is directly deposited to the government itself.

For example:

Raj purchases timber from Yash for Rs.10,000. Thus due to TCS, Raj is accountable to pay Rs.10,250 to Yash (Rs.10,000 for timber and Rs.250 as TCS at the rate of 2.50% on Rs.10,000).

List of TCS rates

You can refer the list of TCS rates in this blog.

What is the difference between TDS and TCS?

Some of the key differences between TDS and TCS can be found in the table below:

TDS TCS
Tax deducted at source Tax Collected at Source
Under the Income Tax Department Under the Income Tax Department
Deduct at the time of crediting the account of payee/ payment The tax payable is collected by the seller at the point of sale.
Indirect collection of tax Direct collection of tax
TDS is collected by the person making the payment. TCS is collected by the person receiving payment.
EXPENSE: tax is deducted from the payment of recipient. INCOME: tax is collected by the seller from the buyer.
The tax rate is fixed by the government The tax rate is fixed by the government
Specific payment is made above a certain limit of the amount Collected on the sale of specified goods like tendu leaves, timber wood, scrap, minerals, etc.
TDS is a buyer end activity. TCS is a seller end activity
The deductor issues a TDS certificate(Form 16, 16B) to the deductee. Tax collector issues a TCS certificate (Form No. 27D) to the Buyer (or lessee or licensee)

Thus we have come to an end of this post on the difference between TDS and TCS. Share your views and opinions about this topic in the comment section below.