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Difference between TDS and TCS

Updated on :  

08 min read.

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.

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:

Type of payment TDS rate
SalariesAs per the tax slab
Rental charges greater than Rs.2,40,000 for buildings, land, plant and machinery10% for land, 2% for plant and machinery
Prize money for a lottery, horse race, crossword puzzle, etc., more than Rs.10,00030%
Brokerage or commission from lottery ticket sales amounting to more than Rs.15,0005%
Purchase of immovable property of more than Rs.50,00,000 1%
Single payment of Rs.30,000 or aggregate payment of Rs.1,00,000 to a contractor 1% for individuals or HUF, 2% for Others

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:

Good purchasedTCS rates
Tendu leaves5%
Alcohol1%
Timber wood from a forest on lease2.5%
Motor vehicles worth more than Rs.10 lakh1%
Toll plaza, quarry, mine and parking lot2%
Metals (including iron ore, lignite and coal)1%
Forest produce (excluding tendu leaves and timber)2.5%

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:

ParametersTDSTCS
LimitsPurchase of goods and services
Sale of goods and services
Transactions coveredRent, commission, interest, rent, salaries, brokerage and moreSelling of toll tickets, forest products, cars, tendu leaves, minerals, liquor, timber, scrap, etc. 
Time of DeductionWhen payment is due or made, whichever comes soonerAt the time of sale
Due dates7th of every month, though the returns have to be submitted quarterlyDeducted in the month in which supply is received. Deposited  to the Government within 10 days from the month’s end in which it is supplied.
Person responsible Individual or company making the payment Individual or business selling the goods or service
Filing quarterly statements Form 24Q (in case of salaries), Form 26Q (for others except salaries), and Form 27Q (for payments to NRIs)Form 27EQ


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 buyer of goods and services while making payments under a business contract. 

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. 

FAQs

What happens when individuals fail to deposit or collect tax?

In case individuals fail to deposit or collect tax, they can face numerous legal consequences like interest, penalty, and imprisonment. It may include 3 to 7 years of imprisonment and a fine of up to Rs.1,00,000.

Can I collect TCS if TDS is already deducted?

No, according to Section 206 C (1H) of the Income Tax Act, you cannot collect TCS if a buyer is under the liability to pay TDS. Moreover, you also have to determine if the buyer deducts TDS when he/she makes the final payment.

How can I pay TDS and TCS?

Every tax-paying individual and the corporate firm can pay TDS and TCS online via the official portal. However, for offline payment, you have to download and submit Challan 281 to any authorised bank.

What is the time limit for a TDS refund?

A TDS refund takes approximately 3 to 6 months in order to reflect in your bank account. In addition, it also depends on whether you have completed the e-verification. You can check the status of the TDS refund or Tax refund here.

What is TDS on salary?

TDS on salary is the tax deducted by the employer while depositing salary to an employee’s account.