TDS/TCS

What Is The Difference Between TDS and TCS?

Income tax is one of the most important financial planning aspects. You need to keep a check

of your incomes, your investments and strategically plan to buy life insurance, a term plan, or

any other tax-saving investment to save tax.

Income tax is not the only source of taxes for the government. It also collects indirect taxes

such as TDS, TCS, and GST from us, by levying them on goods, services, and transactions. In

the case of direct taxes, payments are made by the ones earning the money. In case of indirect

taxes, it becomes the responsibility of the seller to deposit the tax with the government.
Conti…..

Tax Deducted at Source and Tax Collected at Source are both incurred at the

source of income.

TDS is the tax which is deducted on a payment made by a company

to an individual, in case the amount exceeds a certain limit.
TCS is the tax which is collected by sellers while selling something to

buyers.
Conti…..

TDS deduction is applicable on payments such as salaries, rent,

professional fee, brokerage, commission, etc.

TCS deduction is applicable on sales of goods like timber, scrap,

mineral wood, and so on.

Conti…..

TDS is applicable only on payments that exceed a certain amount.

TCS is applicable on sales of specific goods which don’t include

production or manufacturing material.

Tax Deducted at Source (TDS).........................................................Tax Collected at Source (TCS)
Meaning
It is deducted from a company or individual if the transaction exceeds a given limit.
A seller collects this tax when selling Commodities to the buyer.
When to Pay?
When the transaction exceeds the threshold limit. (The limit depends on each payment type)
Sale of specified goods applicable to TCS (except used for manufacturing and production)
On What to Pay?
The payment is valid on receipt of rent, salaries, commission, brokerage and others.
TCS applies to certain commodities such as timber, wood, minerals, and others
Who Is Responsible for Collecting or Deducting the Tax?
A payer (deductor) who is making a specified payment to another individual (deductee) will deduct the
tax at the source and return the same to the Central Government. The deductee can get exemption from
TDS after submitting Form 26AS (TDS certificate).
The seller is only responsible for collecting TCS from the buyer and again paying it to the Central
Government.
Example of TDS
Let’s say Mr.X works at a company. His
company deducts a tax on monthly salary
at the applicable rate before they make
him the final payout. The amount that is
deducted in this manner is TDS.
Example of TCS
Now, Mr.Y is a mineral wood trader. He sells
some mineral wood to Mr.Z. While making
the sale, Mr.Y collects 5 percent tax; this sum
collected by Mr.Y from the customer is called
TCS.
Rates
In October 2018, a new rule came into force. As per this

rule, an operator of an e-commerce market has to collect a

tax on net transaction amount from suppliers who provide

them with goods. The rate for this Tax Collected at Source

is 1%.
 What happens when you fail to collect or deposit tax?

There are legal consequences for failing to collect or deposit tax.

This could include
· A penalty amount equal to the tax which is not deducted or
collected
· Imprisonment of three to seven years plus fine
· An interest on the monthly tax amount eligible for deduction.
This interest applies for each month from the day when the tax
becomes eligible for deduction to the day when it is deducted
(at the rate of 1 percent) or when it is paid to the government (at
the rate of 1.5%). In case of the TCS, the interest rate remains
1%.
TDS and TCS under GST
This applies to e-commerce businesses. Every e-commerce
company has to collect some tax on the net transaction value of
their sales. This rule came into force in October 2018.
The rate for TCS in this situation would be 1% (0.5% CGST +
0.5% SGST). Alternatively, it could also be 1% of IGST.
TDS and TCS under GST
Conclusion
It is crucial to keep track of all your taxes. If TDS has been
deducted from your income, you can get refunds provided you
file returns on time. Imagine the amount of money you would
lose with each transaction simply for not filing returns. If you
have collected TCS, it should be your priority to deposit the
collected TCS with the authorities and ensure smooth and
lawful functioning of your trade. As a personal entity, you can
also save taxes through other means such as tax deduction via
life insurance, mutual funds, and other tax-saving instruments.
 Understanding TDS with an Example

Suppose you are paying rent of ₹60,000 for your office to a property owner.

Parameters Amount
Total Annual Rent ₹7,20,000
TDS Rates Applicable 10%
Actual Rent Paid to Owner ₹(60,000-10%*60,000) = ₹54,000

The TDS amount thus deducted is ₹6,000 per month as the total
annual rent is beyond the tax-free limit of ₹2,50,000.
 Understanding TCS with an Example

If you sell products such as tendu leaves worth ₹60,000 to a buyer, you will
collect the following amount of TCS,

Parameters Amount
Price of Goods Sold ₹60,000
TCS Rates Applicable 5%
Actual Price Paid by Buyer ₹(60,000+5%*60,000)= ₹63,000

Thus, you will collect ₹3,000 as TCS.