Overview of 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 TDS and TCS. 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 fees, commission, etc. However, sales of scrap, timber, mineral wood, etc., attract TCS.
- Essentially, TDS vs TCS differ in applicability. While TDS is only levied on payments that exceed a certain limit, TCS applies to all sales of goods.
TCS Rates Overview1
Under Section 206C of the Income Tax Act, sellers collect TCS from buyers at the time of sale of certain goods. The applicable TCS rates for some commonly purchased items are as follows:
| Purchased Goods | TCS Rates |
|---|
Alcohol
| 1%
|
Scrap
| 1%
|
Motor vehicles of cost more than ₹10 lakh
| 1%
|
Metals (including iron ore, lignite and coal)
| 1%
|
Toll plaza and parking lot
| 2%
|
Quarry and mine
| 2%
|
Timber obtained from a leased forest
| 2.5%
|
Forest produce, except tendu leaves and timber
| 2.5%
|
Tendu leaves
| 5%
|
TDS Rates Overview1
In transactions involving TDS, the recipient of the payment is referred to as the deductee, while the person or entity deducting the tax is called the deductor. The TDS rates for various types of payments are given below:
| Payment Type | TDS Rates |
|---|
Salary
| According to the Income Tax Slab
|
Rent exceeding ₹50,000/month for land, buildings, furniture, plant, or machinery
| 10% on land, building, and furniture; 2% on plant, machinery, and equipment
|
Prize won in a lottery, horse race, or crossword above ₹10,000 per transaction
| 30%
|
Commission or brokerage from lottery ticket sales above ₹20,000
| 2%
|
Purchase of immovable property over ₹50 lakh
| 1%
|
Contractor payments: Single payment of ₹30,000 or aggregate payment of Rs.1,00,000 during a year to a contractor
| 1% for individuals or HUF, 2% for Others
|
Key Differences Between TDS and TCS1
The table below covers the TCS vs TDS difference in detail:
| Aspects | TCS | TDS |
|---|
Definition
| Tax collected by the seller at the time of sale
| Tax deducted by a payer while making a payment
|
Time of Occurrence
| When goods or services are sold
| When goods or services are purchased
|
Transactions Applicable
| Sale of items like toll tickets, forest products, cars, tendu leaves, minerals, liquor, timber, scrap, etc.
| Rent, salaries, interest, commission, brokerage, and more
|
Time of Deduction
| At the point of sale
| TDS is deducted at the time of credit or payment, whichever is earlier.
|
Due Date for Payment
| 7th of the following month from when the sale occurs; returns are filed quarterly
| 7th of the following month from when the payment is made
|
Who is Responsible
| The seller or supplier receiving the payment
| The payer (individual or entity making the payment, not necessarily the customer)
|
Quarterly Filing
| Form 27EQ to be submitted quarterly
| Form 24Q (in case of salaries, pension and interest income of senior citizen), Form 26Q (for others except salaries), and Form 27Q (for payments to NRIs). The returns have to be submitted quarterly except under exceptional circumstances.
|
Examples of TDS and TCS Explained
To understand the difference between TDS and TCS with an example, refer to the case study given 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.
Key Takeaways
- TDS (Tax Deducted at Source) is deducted by the payer while making certain payments, whereas the seller collects TCS (Tax Collected at Source) at the time of sale.
- TDS applies to payments such as salaries, rent, interest, commission, and contractor payments, among others.
- TCS applies to goods such as timber, minerals, tendu leaves, alcohol, scrap, and high-value vehicles, among others.
- Differences between TDS and TCS lie in the point of deduction, the person responsible, the filing process, and other such parameters.
- Failure to deduct or collect taxes can attract penalties, interest, and other legal consequences.
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 life 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 a 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.
Can TCS Be Charged If TDS Is Deducted?
In a transaction, if TDS is deducted as per the Income Tax Act, the TCS cannot be charged.1
What is the main difference between TDS and TCS?
The main difference between TDS and TCS is that TDS (Tax Deducted at Source) is deducted by the payer while making a payment, whereas TCS (Tax Collected at Source) is collected by the seller while receiving a payment.2
How to report TDS and TCS in the income tax return?
Ensure both appear in Form 26AS. TDS: use Form 24Q, 26Q, or 27Q. TCS: use Form 27EQ. Include all in your ITR to claim proper credit and ensure compliance.
Sources
1.https://cleartax.in/s/difference-between-tds-and-tcs
2.https://www.moneycontrol.com/news/business/personal-finance/tds-tcs-arent-money-lost-forever-you-can-adjust-or-claim-it-back-10658241.html
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