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TDS vs TCS – Know The Differences
TDS & TCS both are direct taxes that are taxed on the income which the person earns. Having stating that, both being the direct taxes often create confusions in the minds of people. In this blog, all your confusions related to difference between TDS and TCS will go away!
TDS & TCS
- TDS stands for Tax Deducted at Source and on the other hand, TCS stands for Tax Collected at Source.
- TDS is deducted on a payment made by a company to an individual whereas, TCS is collected by sellers while selling something to buyers.
- TDS is applicable only on payments exceeding a certain amount. However, TCS is applicable on sales of specific goods which do not include production or manufacturing material.
- TDS is applicable on payments such as salaries, rent, professional fee, brokerage, commission, etc. On the contrary, TCS is applicable on sales of goods like timber, scrap, mineral wood, and so on.
Difference between TDS & TCS
| Basis of Comparison | Tax Deduction at Source (TDS) | Tax Collected at Source |
| Meaning | An amount that is deducted from the Income of the recipient in the form of tax. | TCS is an amount that is collected by the company or seller as tax. |
| Transactions Covered | It applies to salary, rent, brokerage, professional fee, commission, interest, etc. | TCS is collected on the sale of Goods such as timber, minerals, liquor, toll plaza etc. |
| Person Responsible | Deducted by payer or buyer | Collected by payee or seller |
| Time of Deduction/Collection | Crediting the account of the payee or during payment, whichever is earlier. | Debiting the account of the buyer or during receipt whichever is earlier. |
| Due Dates | The due date to deposit TDS is the 7th of every month | TCS is deposited within ten days from the end of the month to the credit of the Goverment. |
| Example | Mr. A has to pay the salary of Rs 10,000 to Mr B, suppose tax raise is 10% then Mr A will pay Rs 9000 as a salary and the remaining Rs 1000 is deposited with the Government. | Mr A sold gold to Mr B for Rs 10,000 and here the TCS rate is 3% then Mr A collects Rts 10,300 from Mr B and keeps Rs 10,000 and deposits Rs 300 with the Goverment. |
Example on TDS & TCS Difference
Example I:
The Nataraj Group Pvt. Ltd. pays Rs. 40,000 rent per month for their office space to DXB Group. Their annual rent amounts to Rs. 480,000. This amount exceeds the TDS non-deduction limit of Rs. 2,40,000 (Section 194I). Therefore, Nataraj Group Pvt Ltd. will deduct TDS @10%, i.e., Rs. 4000 per month, and pay Rs. 36,000 per month as rental payment. In their income tax return, the owner of the office space i.e., DXB Group will list Rs. 4,80,000 as gross income and claim TDS of Rs. 48,000 (already deducted) as a total tax liability credit, termed as the TDS credit.
Example II:
Mr. Soumya is a wood trader, and Ms. Rani buys wood from him for ₹50,000. But, Ms. Rani will pay ₹52,500 [50,000 + (5%*50,000)] to Mr. Soumya. The extra Rs. 2500 is a TCS collection by Mr. Soumya. While filing her ITR, Ms. Rani can claim a credit of Rs. 2500 for total tax liability, which is a TCS credit.
Penalties For Non-Compliance
The deductor/collector can be subject to penalty if they fail to pay TDS on time and file their TDS/TCS return correctly under Section 271H. The deductor/collector can face a minimum fine of Rs. 10,000. Additionally, maximum penalty of Rs. 1,00,000 is to be paid for filing an incorrect TDS/TCS return. Furthermore, Section 201(1A) of the Income Tax Act mandates an interest of @1.5% per month applicable for non-deduction of TDS from the date on which tax was deductible to the date on which tax is deducted. In case of late TDS payments, the same interest of 1.5% will apply from the date of deduction to the payment date.
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