Understanding the Difference Between TDS and TCS in India

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are two important terms used in the taxation system of India. Both are different in their nature and purposes. In this blog, we will discuss the key differences between TDS and TCS.

What is TDS?

TDS stands for Tax Deducted at Source. It is a mechanism of collecting tax at the source of income. As per this mechanism, a certain percentage of tax is deducted from the payment made to a person who is entitled to receive such payment. This deduction is made by the person making the payment, who is called the deductor. The deductor is required to deposit the TDS with the government within a specified time frame.

What is TCS?

TCS stands for Tax Collected at Source. It is also a mechanism of collecting tax at the source of income. As per this mechanism, a certain percentage of tax is collected by the seller at the time of sale of goods or services. The seller is required to collect TCS from the buyer and deposit it with the government within a specified time frame.

Key Differences between TDS and TCS:

1. Applicability: TDS is applicable on various types of income such as salary, interest, rent, commission, etc. whereas TCS is applicable on the sale of specified goods or services.
2. Deductor/Collector: In the case of TDS, the person making the payment is required to deduct tax at the source and deposit it with the government. In the case of TCS, the seller of goods or services is required to collect tax at the source and deposit it with the government.
3. Rate of Tax: The rate of TDS varies depending on the type of income and the category of the recipient. The rate of TCS, on the other hand, is fixed by the government.
4. Time of Payment: In the case of TDS, the tax is deducted at the time of payment and deposited with the government within a specified time frame. In the case of TCS, the tax is collected at the time of sale and deposited with the government within a specified time frame.
5. Purpose: The purpose of TDS is to ensure that the government gets a steady source of revenue by collecting tax at the source. The purpose of TCS is to ensure that the government is able to keep track of the transactions of specified goods or services.

Advantages of TDS and TCS:

TDS and TCS are important mechanisms in the Indian taxation system. They offer various advantages to both the government and taxpayers. Some of the advantages of TDS and TCS are:

Advantages of TDS:

• It ensures a regular source of revenue for the government.
• It helps to prevent tax evasion by making it difficult for the taxpayers to evade tax.
• It helps in the timely collection of tax, as the tax is deducted at the source itself.
• It reduces the burden of tax collection on the government as it is collected by the taxpayers themselves.

Advantages of TCS:

• It helps the government to keep track of transactions of specified goods and services.
• It helps to prevent tax evasion by making it difficult for the taxpayers to evade tax.
• It provides a regular source of revenue to the government.
• It reduces the burden of tax collection on the government as it is collected by the taxpayers themselves.

Penalties for Non-Compliance:

Non-compliance with the TDS and TCS provisions can attract penalties and fines. Some of the penalties for non-compliance with TDS and TCS provisions are:

Penalties for Non-Compliance with TDS:

• If the deductor fails to deduct tax or fails to deposit tax deducted at source, a penalty can be imposed.
• If the deductor furnishes incorrect information or does not furnish information regarding TDS, a penalty can be imposed.

Penalties for Non-Compliance with TCS:

• If the seller fails to collect tax or fails to deposit tax collected at source, a penalty can be imposed.
• If the seller furnishes incorrect information or does not furnish information regarding TCS, a penalty can be imposed.

Know Other Difference:

Grow your business with Marg ERP! Easy GST invoices and filing.

Book Free Trial!

• Difference Between Entrepreneur and Manager
• Difference Between LLP and Partnership

Recent changes in TDS and TCS:

The Indian government makes amendments to the tax laws from time to time. Recently, there have been some changes in the TDS and TCS provisions. Some of the recent changes in TDS and TCS provisions are:

Changes in TDS:

• The TDS rates for non-salaried payments such as rent, professional fees, and commission have been reduced by 25% for the financial year 2020-21.
• The threshold limit for TDS on interest income from banks and post offices has been increased from Rs. 10,000 to Rs. 40,000 for the financial year 2019-20.

Changes in TCS:

• The TCS provisions have been expanded to cover the sale of goods and services made through e-commerce operators. E-commerce operators are required to collect TCS at the rate of 1% on the sale of goods or services made through their platform.
• The threshold limit for TCS on the sale of goods has been increased from Rs. 50 lakhs to Rs. 1 crore for the financial year 2019-20.

These changes have been made with the objective of simplifying the tax laws and reducing the burden of tax compliance on taxpayers.

Conclusion:

In conclusion, TDS and TCS are two important mechanisms of collecting tax at the source of income. While TDS is applicable on various types of income and is deducted by the person making the payment, TCS is applicable on the sale of specified goods or services and is collected by the seller. Understanding the key differences between TDS and TCS is important for taxpayers to comply with the tax laws of India.

Frequently Asked Questions (FAQ’s)

Q1.) What is TDS and TCS in India?

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are mechanisms for collecting tax at the source of income and specified goods or services, respectively.

Q2.) Who is liable to deduct or collect TDS/TCS?

The person making the payment for specified goods or services is liable to collect TCS, while the person making the payment for income is liable to deduct TDS.

Q3.) What is the rate of TDS/TCS in India?

The rates of TDS/TCS vary depending on the type of income or specified goods or services.

Q4.) What is the due date for depositing TDS/TCS?

TDS/TCS must be deposited to the government by the 7th of the subsequent month in which the deduction/collection was made.

Q5.) What are the consequences of non-compliance with TDS/TCS provisions?

Non-compliance with TDS/TCS provisions can attract penalties and fines.

Q6.) What is the threshold limit for TDS/TCS in India?

The threshold limit for TDS/TCS varies depending on the type of income or specified goods or services.

Q7.) Can I claim a refund of TDS?

Yes, taxpayers can claim a refund of TDS if the amount of tax deducted is more than the actual tax liability.

Q8.) Is TDS/TCS applicable to non-residents?

Yes, TDS/TCS is applicable to non-residents as well, subject to the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the non-resident’s country of residence.

Q9.) Can I file TDS/TCS returns online?

Yes, TDS/TCS returns can be filed online on the Income Tax Department’s website.

Q10.) Can I make corrections to TDS/TCS returns?

Yes, taxpayers can make corrections to TDS/TCS returns within a certain time limit. However, after the time limit, corrections can only be made by applying to the Assessing Officer.