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What Is The Difference Between TDS and TCS?


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Aug 02, 2022

By : Bajaj Allianz Life

While everyone is more or less aware of the benefits of paying direct taxes on their income regularly, such as getting their tax liability reduced and ease in availing overseas visas, there is a lot of confusion still about indirect tax components, including tax deducted at source (TDS) and tax collected at source (TCS).

 

TDS and TCS

 

TDS and TCS are two kinds of direct taxes levied in India that are frequently confused with each other. While both are incurred at the source of the income being generated, there are subtle differences between the two. Read on to learn more.

  • Tax deducted at source (TDS) refers to the tax deducted by a person while making a payment to any other person if the amount exceeds a certain level. Tax collected at source (TCS), however, is the tax that sellers collect while making a sale to buyers.
  • TDS deductions are usually levied on payments, such as rent, salaries, brokerage, professional fee, commission, etc. However, sales of scrap, timber, mineral wood, etc. attract TCS.
  • While TDS is only levied on payments that exceed a certain limit, TCS applies to all sales of goods .

 

Tax Deducted at Source and Tax Collected at Source: Examples

 

For a detailed understanding of how tax deducted at source differs from the tax collected at source, examples have been provided below.

For instance, Rahul works at Jain Brothers Limited, which deducts a certain amount as tax on his monthly salary before the amount is credited to him. Tax deducted in this instance is referred to as TDS.

On the other hand, Mr. Solanki trades minerals and makes a sale to Mr. Patel, on which he collects a tax of 1%. The tax collected in this manner by Mr. Solanki is the tax collected at source or TCS.

 

What Happens When You Fail to Collect or Deposit Tax?

 

As with all other forms of taxation, legal penalties can be enforced when an individual or organisation fails to collect or deposit the appropriate taxes. Read on below to learn what the penalties could entail.

  • A penalty amount equivalent to the taxation amount due could be levied for failure to make the applicable TCS collection or TDS deposit.
  • The individual in charge could also face imprisonment ranging from three to seven years along with a fine.
  • Regarding failure in TDS deposit, an interest is levied on the applicable amount from the date the tax is eligible to be levied till the date the tax is deducted (1%) or till it is paid to the government (1.5%). For failure to make TCS collection, the interest rate levied stays 1%.

 

TDS and TCS under GST

 

The Goods and Services Tax (GST), enforced in July 2017, completely overhauled the Indian taxation system. In October 2018, the scope of the GST was further expanded to include e-commerce businesses under its ambit. As a result, every e-commerce company is now required to levy a certain amount of tax collected at source on the net transaction value of its sales.

For e-commerce businesses, the rate of TCS is applied at 1%, divided equally between CGST and SGST. It could alternatively be calculated as 1% of IGST.

 

Conclusion

 

Filing your taxes on time is one of the most important duties for every Indian citizen. It is crucial to keep track of the taxes due and file them on time and accurately. Failure to file taxes can attract heavy penalties and even result in further losses. For instance, the Indian taxation system enables the setting off of tax payments against losses incurred by an individual or business. However, failure to pay taxes on time may result in one losing such privileges.

One of the preferred ways to save taxes is to invest in insurance. Life insurance is one of the most popular investment tools in existence. Along with helping individuals avail tax benefits, life insurance also help offer comprehensive financial protection to their family and loved ones in case they are not around due to unfortunate circumstances. The premiums associated with life insurance are not too high, considering the enormous advantages they have to offer. In case no claims are raised during the tenure of the policy, the policyholder is even eligible for receiving the total premiums they have paid towards the policy during its tenure subject to policy terms & conditions. Even by choosing to pay only for a limited term, you can avail coverage for up to 99 years of age in case of Whole Life Term Insurance Plans. Aside from offering tax benefits and enabling you to ensure financial protection for your family, life insurance policies are also popular for the riders and add-ons they offer by paying nominal extra premium. For instance, you could be insured against a range of critical illnesses and even accidents by opting for a single life insurance policy.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale. Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.