Find Out the Difference Between TDS and TCS

Do you know that In addition to the direct tax on your income, you pay various taxes on various transactions? They are known as indirect taxes and are the government’s primary source of revenue. Indirect tax includes GST, TDS, and TCS. The article will compare TDS and TCS in depth.

What is TDS?

TDS stands for tax deducted at source. It is the amount deducted by any employer or payor before releasing salary/payment. TDS rates are determined by factors such as income, age, and so on. The main goal of implementing this in the taxation system is to have control over tax evaders.

TDS applies to rent, salary, professional fees, interest income, and a few more. For example, the provisions of section 194Q mandate individuals or companies to deduct TDS if the transaction value for legal fees, rent, royalty, etc., exceeds ₹50 lakhs.

How Does TDS Work?

Assume you have rented the commercial space to company XYZ Ltd. In this case, the annual rent that you have set is ₹4.80 lakhs (₹40,000 monthly). Since the rent amount exceeds the threshold limit of ₹2.40 lakhs, XYZ Ltd., before transferring rent to your account, is required to deduct the TDS at the rate of 10%. It means the monthly payment you will receive in rent is ₹36,000.

When filing your income tax return (ITR), you should report your gross rent income as ₹4.8 lakhs. Then you can deduct ₹48,000, the annual TDS amount, from rental income to reduce your taxable income.

What is TCS?

TCS refers to the tax collected at the source. It is the amount which the seller of the good charges the buyer at the time of the sales transaction. Following that, the deducted amount is deposited with the tax authorities. The provisions of the TCS are outlined in section 206C of the Income Tax Act. The section also states that if a person does not have a Tax Collection Account Number, he is not authorised to charge TCS.

How Does TCS Work?

Assume you need a certain quantity of wood. You go to a wood trader named Mr Amit and buy wood worth ₹50,000. However, when you ask for the bill, Amit hands you a receipt for ₹52,500. In this case, the additional ₹2,500 is charged as TCS.

With respect to the above transaction, you can claim a credit for the TCS of ₹2,500 from your total tax liability.

What are the Different TCS Rates Applicable to Different Goods?

TCS does not apply to any goods which are used for processing, manufacturing, or production. However, if you use it for trading, TCS is necessary. The table below shows the TCS rate for various goods.

Apart from the above table, if your previous financial year turnover was over ₹10 crores and you received a sale consideration of more than ₹50 lakhs from any buyer, the applicable TCS would be 0.1%. The rate will be increased to 1% in case there is no PAN card.

Difference Between TDS and TCS

To assist you in understanding the distinction between TCS and TDS, we have attempted to distinguish them using various parameters.

• Meaning:

  TDS is deducted before making the salary or other payment if the amount exceeds the threshold limit prescribed under different sections dealing with different transaction types.
  
  On the other hand, TCS is applicable on sale transactions and is levied by the seller.

• Transactions covered:

  The provisions of the TDS apply to transactions including professional fees, brokerage, salary, rent, etc.
  
  Whereas; TCS covers sales transactions related to scrap, liquor, minerals, scrap, and so on.

• Transaction limit:

  According to section 194Q, TDS is levied on the purchase of goods worth ₹50 lakhs or more.
  
  Whereas, in the context of TCS, section 206C (1H) states that the seller must collect TCS if the sales transaction exceeds ₹50 lakhs.

• Rates:

  If the transaction value exceeds ₹50 lakhs, the TDS and TCS rates are similar, at 0.1%.

• Deduction/collection date:

  TDS is deducted from payments as soon as they are due or paid, whichever comes first. On the other hand, the seller collects the TCS at the time of execution of the sales transaction.

• Who can deduct/collect taxes?

  TDS is deducted by the person or company in charge of making payments. Whereas; TCS is collected by the seller of the goods or services.

• Due date for tax deposit:

  TDS must be deposited with the appropriate authority by the 7th of each month. The returns for the same must be submitted every quarter.
  
  The TCS must be deposited within ten days and before the completion of the same month in which the transaction was executed.

• Filing of returns:

  TDS can be filed in three different forms depending on the transaction type. Form 24Q is required for salary payments, Form 27Q is for payments to NRIs, and Form 26Q is for other transactions.
  
  Whereas; quarterly filing of TCS can be done using Form 27EQ.

What is the Penalty for Non-Compliance with TCS and TDS Rules?

According to Section 201(1A), if the person/company responsible for deducting TDS is charged with a 1.5% interest penalty for the period beginning with the date the deduction was actually due and ending with the date on which it is deducted. A similar rate is levied for the late TDS payment.

Also, Section 271H requires the person responsible for filing returns to pay a minimum penalty of ₹10,000 and a maximum penalty of ₹1 lakh in the case of a late or incorrect TDS/TCS file.

To conclude: 

Simply put, the TDS is deducted from the payment you receive and for TCS, you must pay the additional amount over the actual price at the time of buying goods or services. 

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