Difference between TDS & TCS
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In this post, we will see the differences between the Tax Deducted at Source (TDS) as well as Tax collected at source (TCS) in a nutshell.

We will cover the following topic:

In the Finance Act, 2020, the government introduced Tax Collected at Source (TCS) in Section 206C (1H). Then in the Finance Act, 2021 Tax Deducted at Source (TDS) was introduced in Section 194Q.

There are 2 types of tax collection in India, and they are:

  • Indirect Tax (example-Tax Deducted at Source (TDS)
  • Direct Tax (example-Tax Collected at Source (TCS)

What is TDS?

Any company /individual (deductor) makes a payment to another entity (deductee), deducts TDS if it is above a specific threshold limit, and pays it to the government.

Some examples for which TDS is applied are casual income, one’s salary, interest on securities, payment of fees, payment of brokerage or commission, and so on.

Note:

  • The total income of an assessee for the previous year is taxable in the assessment year.
  • Every payment does not have a TDS deduction and its 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 the balance of 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?

The tax the seller of specified goods collects from the buyer at the time of sale is called as Tax collected at source (TCS) under Income Tax.

TCS is collected as per the government-approved standard rate on specific goods. It is directly deposited to the government and issues a TCS certificate, for which the buyer will get credit.

Example for TCS application:

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 to the list of TCS rates in this blog.

What is the difference between TDS and TCS?

Some key differences between Tax Deducted at Source (TDS) and Tax collected at source (TCS) can be found below:

Tax Deducted at Source (TDS) Tax collected at source (TCS)
TDS is imposed when one’s specified expenses cross the prescribed limit. TCS is imposed upon the sale of certain goods.
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 tax Direct 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
 TDS rate varies based on the payment type being made.  TCS rate varies based on the product type being sold.
TDS is credited to the payee’s account or during payment, whichever is earlier. For life insurance and salary payment, it is deducted at the time of the payment.  TCS is debited from the buyer’s account or during receipt, whichever is earlier. During the sale of jewellery or bullion, TCS is collected if consideration is received in cash.
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)

Note:

  • TDS deductor to deposit the tax every month and the due date is the 7th day of the following month in which the tax is deducted.
  • The seller deposits TCS within the first 7 days of the following month in which the tax was collected. The seller also needs to submit a quarterly TCS return.
  • If the deductor fails to deposit the TDS, a penalty of 1.5% (simple interest) per month on the tax amount. If the deductor fails to deduct TDS from the payment, a penalty of 1% per month.
  • Non-payment / late payment penalty for TCS is 1% of the tax amount and also imprisonment up to 7 years.

Thus, we have come to an end of this post on the difference between TDS and TCS.

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