The terms TDS and TCS may seem similar but there are several differences between the two. While TDS refers to the tax deducted at source, TCS is the tax collected at source. The two differ as per the section of Income Tax that governs them.
Through this article, you will learn the difference between TDS and TCS, their advantages, disadvantages, and their real-life examples
Table of Contents
- Difference Between TDS and TCS
- What is Tax Deducted at Source (TDS)?
- What is Tax Collected at Source (TCS)?
Difference Between TDS and TCS
The following tabular comparison highlights the difference between TDS and TCS, here is a tabular comparison for a quick overview:
|Tax deducted by the payer before making payment to the payee.
|Tax collected by seller from the buyer at the time of sale.
|Section 192 to 196D of the Income Tax Act, 1961.
|Section 206C of the Income Tax Act, 1961.
|Incomes such as salary, interest, commission, rent, professional fees, etc.
|Sale of certain goods as specified under the Income Tax Act.
|7th of the next month.
|7th of the next month.
Detailed Difference Between TDS and TCS
TDS (Tax Deducted at Source)
- Nature: TDS is taken from payments such as wages or interest before reaching the receiver, ensuring taxes are collected upfront.
- Applicability: It's required for certain transactions, defined by tax laws, to curb tax evasion and secure revenue.
- Collector: Entities making payments (employers, companies) are tasked with tax deduction, emphasizing their role in tax compliance.
- Compliance: Deductors must submit the collected tax to the government, providing a formal acknowledgment to the person from whom it was deducted.
TCS (Tax Collected at Source)
- Nature: Sellers charge TCS on the sale of specific items, directly affecting the transaction cost for buyers.
- Applicability: Targeted at particular sales, TCS aims to broaden tax collection, especially in sectors prone to underreporting.
- Collector: Businesses facilitating sales collect this tax, placing the onus on them to aid in tax enforcement.
- Compliance: Collectors are responsible for remitting TCS to the state, ensuring that buyers receive documentation for tax paid.
What is Tax Deducted at Source (TDS)?
TDS stands for Tax Deducted at Source. It is a method to collect tax at the source of income. According to Income Tax Act, 1961, the payer or deductor is obligated to deduct a certain percentage of tax before making payment to the payee or deductee. Then, the deducted amount is remitted to the Central Government. TDS is applicable on various incomes such as salary, interest, commission, rent, professional fees, etc.
Advantages of TDS
- Ensures regular inflow of revenue to the government.
- Prevents tax evasion as the tax is deducted at the source.
- Reduces the burden of lump sum tax payment as the tax is deducted periodically.
Disadvantages of TDS
- If the deductor fails to deduct TDS or does not deposit the deducted TDS to the government, the deductee may face difficulties while filing the Income Tax Return.
- There can be instances where TDS is deducted even when the total income of the deductee does not fall under the taxable bracket.
Understanding TDS With An Example
A company pays a salary of INR 60,000 to an employee. The applicable TDS rate for salary income is 10%. Therefore, the company needs to deduct TDS from the employee's salary and deposit it with the government.
- Start with the gross salary amount, which is INR 60,000.
- Determine the TDS rate for salary income, which is 10%.
- Calculate the TDS amount by multiplying the gross salary by the TDS rate: TDS = INR 60,000 * 10% = INR 6,000.
- Deduct the calculated TDS amount of INR 6,000 from the gross salary.
- Pay the net salary of INR 54,000 (INR 60,000 - INR 6,000) to the employee.
- Deposit the deducted TDS amount of INR 6,000 with the government.
What is Tax Collected at Source (TCS)?
TCS, on the other hand, stands for Tax Collected at Source. It is the tax payable by the seller who collects it from the buyer during the time of sale. As per section 206C of Income Tax Act 1961, the provision relating to the collection of TCS is provided. The rate of TCS is different based on the nature of goods and the method of payment.
Advantages of TCS
- Ensures a steady collection of tax for the government.
- Helps in tracking high-value transactions and thereby curbing black money circulation.
Disadvantages of TCS
- Increases the cost for the buyer as the amount of TCS is recovered from the buyer.
- The seller has to maintain detailed records as he has to collect tax, deposit it to the government, and also file returns.
Understanding TCS With An Example
A company sells goods worth INR 1,00,000 to a customer. The applicable TCS rate for the sale of these goods is 1%. Therefore, the company needs to collect TCS from the customer and deposit it with the government.
- Start with the sale amount, which is INR 1,00,000.
- Determine the TCS rate for the sale, which is 1%.
- Calculate the TCS amount by multiplying the sale amount by the TCS rate:
- TCS = INR 1,00,000 * 1% = INR 1,000.
- Collect the calculated TCS amount of INR 1,000 from the customer.
- Receive the remaining payment of INR 99,000 from the customer.
- Deposit the collected TCS amount of INR 1,000 with the government.
Latest Statistics and News
Here are some of the latest news headlines related to TDS and TCS collection for the financial year 2022-23:
- Revenue Department has announced a 25% reduction in the rates of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) for the financial year 2022-23. This move is expected to provide more funds at the disposal of the taxpayers.
- Central Board of Direct Taxes (CBDT) has issued new rules for TDS and TCS, which will come into effect from July 1, 2023. The new rules aim to simplify the compliance process for taxpayers.
- Finance Ministry has announced that the collection of TDS and TCS has exceeded the target for the financial year 2022-23. The exact figures have not been disclosed yet.
Understanding the difference between TDS and TCS is crucial for both individuals and businesses. While both are mechanisms to collect tax, they differ in their applicability, responsibility, and the way they are implemented. TDS is deducted by the payer before making payment to the payee, whereas TCS is collected by the seller from the buyer at the time of sale. Both TDS and TCS play a significant role in the government’s revenue collection and help in preventing tax evasion. It is important to stay updated with the latest changes in the Income Tax Act, 1961, to ensure compliance and avoid penalties.
Who is responsible for deducting TDS and collecting TCS?
TDS is deducted by the payer before making payment to the payee, while TCS is collected by seller from buyer during the time of sale.
When is TDS and TCS applicable?
TDS is applicable on various incomes such as salary, interest, commission, rent, etc., as per the Income Tax Act, 1961. TCS is applicable on the sale of certain goods like scrap, tendu leaves, timber, etc., and also on certain services.
What is the due date of depositing TCS and TDS?
Due date for depositing TDS is the 7th of next month, except for March, where the due date is April 30th. For TCS, the due date is the 7th of the next month.
Who is authorized to deduct TDS and collect TCS?
TDS must be deducted by employers, individuals, or businesses making certain types of payments. TCS is applicable for specified sellers while selling certain goods to buyers.