Difference between TDS and TCS

TDS and TCS are the most essential taxes levied by the Indian Government. 
Such taxes must be deducted/collected and deposited with the respective authorities of the government. 
However, individuals often mix up these terms and use them interchangeably. If you want a thorough understanding of the difference between TDS and TCS and their implications, check out the details below.

Budget 2025 update

The Union Budget 2025 proposed the rationalisation of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) to ease compliance challenges for taxpayers especially for middle-income earners. The government has raised the threshold limits across various TDS sections, aiming to simplify the tax process. The proposed changes are as follows

Section	Present	Proposed
193 - Interest on securities	NIL	10,000
194A - Interest other than Interest on securities	(i) 50,000/- for senior citizen; (ii) 40,000/- in case of others when payer is bank, cooperative society and post office (iii) 5,000/- in other cases	(i) 1,00,000/- for senior citizen (ii) 50,000/- in case of others when payer is bank, cooperative society and post office (iii) 10,000/- in other cases
194 – Dividend, for an individual shareholder	5,000	10,000
194K - Income in respect of units of a mutual fund	5,000	10,000
194B - Winnings from lottery, crossword puzzle Etc. & 194BB - Winnings from horse race	Aggregate of amounts exceeding 10,000/- during the financial year	10,000/- in respect of a single transaction
194D - Insurance commission	15,000	20,000
194G - Income by way of commission, prize etc. on lottery tickets	15,000	20,000
194H - Commission or brokerage	15,000	20,000
194-I - Rent	2,40,000 (in a financial year)	6,00,000 (in a financial year)
194J - Fee for professional or technical services	30,000	50,000
194LA - Income by way of enhanced compensation	2,50,000	5,00,000
206C(1G) – Remittance under LRS and overseas tour program package	7,00,000	10,00,000

Note: 

• The Tax Collected at Source (TCS) will be removed on remittances made for educational purposes when these remittances are financed through loans from specified financial institutions (Section 80E).
• The Tax Collected at Source (TCS) on the purchase of goods will be removed, effective from April 1, 2025.
• The higher TDS rate will only apply in cases where taxpayers do not provide PAN.

What are TDS and TCS with Examples?

TDS stands for Tax Deducted at Source. It is the tax amount that the government collects directly from the recipient’s income immediately when it is earned. The TDS is deducted at a certain percentage. As per the IT Act, an individual or any company can deduct this tax at the source of income if the payment for any goods or services crosses a certain amount. 

The Government decides the TDS rates and thresholds for different types of goods and services for a particular financial year. 

The services include the following:

• Royalty
• Technical services
• Legal fees
• Consulting
• Rent, etc. 

In a transaction where TDS is applicable, the person or firm receiving the payment is called the deductee. On the other hand, the individual or business deducting TDS from the payment is called a deductor. 

Take a look at the TDS rates for some payment types:

Let’s take an example for better understanding. Suppose ABC Ltd. pays a rent of Rs.40,000 per month for a warehouse. The yearly rent of this company amounts to Rs.4,80,000, which is above the threshold of Rs.2,40,000. 

Thus, ABC Ltd. will deduct the TDS at the rate of 10%, amounting to Rs.4,000 and then pay Rs.36,000 as monthly rental charges. 

Now, the warehouse’s owner will list Rs.4,80,000 gross income in his income tax return and claim a TDS of Rs.48,000, which has already been deducted, as a total tax liability credit, also known as a TDS credit.   

Alternatively, TCS stands for Tax Collected at Source. According to Section 206C of the Income Tax Act, seller imposes TCS on their goods and collect them from buyers at the time of sale.

Here are the TCS rates for some commonly bought goods:

Suppose Mr Mishra purchases tendu leaves worth Rs.60,000 from Mr Desai. However, Mr Mishra will pay the following amount:

Rs.{60,000 + (5% of 60,000)} = Rs.63,000

Mr Desai will collect the extra Rs.3,000, also known as TCS credit. 

What is the Difference between TDS and TCS?

You can understand the difference between TDS and TCS through the following illustration:

Is TCS Applicable if TDS is Deducted?

During a transaction, if a buyer deducts TDS based on the provisions in the Income Tax Act, then, in this case, TCS is not applicable.  

What is TDS and TCS Amount?

TDS amount is the tax deducted by an individual or company while making a payment. In comparison, TCS amount is the tax collected by the seller during the time of sale. 

Who will Deduct TDS and TCS?

In the event of a transaction, the individual making the payment will deduct TDS. In contrast, the seller deducts the TCS during the sale of goods or services. 

What is the Difference Between TDS and TCS in GST?

TDS under GST is tax-deductible by a specified buyer of goods and services while making payments under a business contract if the contract value exceeds Rs.2,50,000. 

Whereas TCS under GST is the tax that an e-commerce business collects when merchants sell goods or services via its website, and the e-commerce platform takes payments on their behalf.   

As a tax-paying individual or business, you must file TDS returns on time in order to get the refunds. Conversely, if you collect TCS, you have to deposit it with the respective authorities within the stipulated time.