Difference between TDS and TCS

TDS and TCS are one of the most familiar forms of direct tax levying mechanism by the Indian Government. 
However, taxpayers 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.

What are TDS and TCS with Examples?

Tax Deducted at Source (TDS)

• It is the tax amount that the government collects directly from the recipient’s income immediately when it is earned. 
• The payment is made to the recipient only after deducting prescribed TDS 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:

Illustration

Let’s take an example for better understanding. Suppose ABC Ltd. pays a rent of Rs.80,000 per month for a warehouse, which is above the threshold of Rs.50,000 per month. 

Thus, ABC Ltd. will deduct the TDS at the rate of 10%, amounting to Rs.8,000 and then pay Rs.72,000 as monthly rental charges. 

Now, the warehouse’s owner will list Rs.9,60,000 gross income in his income tax return and claim a TDS of Rs.96,000, which has already been deducted, as a total tax liability credit, also known as a TDS credit.   

Tax Collected at Source (TCS)

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:

Illustration

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, TCS is not applicable.  

What is TDS and TCS Amount?

TDS amount is the tax deducted by an person 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 person making the payment will deduct TDS. In contrast, the seller (person receiving the payment) collects TCS during the sale of goods or services.