What is The Difference Between TDS and TCS?

The government collects taxes through income tax, direct taxes, and indirect taxes. Direct taxes are directly paid to the government from income earned by the person earning the money. Indirect taxes, on the other hand, are paid directly by the individual earning money. The seller must deposit the tax with the government.

Two examples of indirect taxes levied by the government are Tax Deducted at Source and Tax Collected At Source. These terms may be interchangeable. Here’s the difference between TDS and TCS.

What is TDS?

TDS, or Tax Deducted at Source, is an indirect tax. Revenue collection occurs directly at the source of the recipient’s income. TDS is based on the idea of ‘pay as it is earned’ and ‘collect when you are earned’.

The Income Tax Act states that any payment falling under the TDS umbrella must be made after a percentage deduction. Section 194Q states that a person or a company must deduct tax from the source of payment if the amount is more than 50 lacs. This applies to the purchase of goods or services. This includes expenses such as legal fees, technical services, rent, etc.

The person receiving the payment and the company that deducts TDS are called the deductor. TDS allows income tax to be charged upfront rather than later. The recipient receives tax-deducted income immediately.

What is TCS?

TCS, also known as Tax Collected At Source (or Tax Collected at Source), is the tax that sellers impose on goods and collect from buyers at the time of sale. The seller then transfers the tax to the government.

Section 206C of 1961’s Income Tax Act lists the items for which TCS may be levied. These items include liquor, timber wood, liquor, minerals such as lignite, coal, parking lots, and toll plazas. TCS has a limit of Rs. 50 lacs on goods sales. 50 lacs.

TDS and TCS examples

Let’s look at an example to show the differences.

Imagine that you are an employee in a company with a salary of Rs. 20,000. The company will deduct a predetermined percentage of your salary as TDS from the time you receive your salary. Let’s assume that the TDS is 5%. Thus, you will receive Rs. You will receive Rs. 1000.

Let’s say you want to buy timber from a trader for Rs. 50,000. You will also pay him Rs. 52,000 (50,000 + 5.5% of 50,000). The surplus of Rs. The TCS that you will pay the timber trader is 2,500. You can claim Rs. For the total tax liability, you can claim a credit of Rs.2,500 This credit is also known as TCS credit.

TDS and TCS: Difference

TDS and TCS both apply at the source of payment. There are however some key differences between the types of taxes.

  • Significance

TDS refers to the tax that is deducted from the source by an individual or company when they make a payment if the amount is greater than a predetermined threshold. TCS, on the other hand, is the tax that the seller collects from the buyer at the time of sale.

  • Transactions covered

TDS covers expenses like interest, salaries, and brokerage fees, as well as rent, commissions, and rent. TDS applies to the sale of items like timber, liquor, and minerals.

  • There are limits

Section 194Q states that TDS applies to the purchase of goods if the amount is more than Rs. 50 lacs. Section 206C (1H) states that TCS applies to the sale of goods if the amount is more than Rs. 50 lacs.

  • Rates

TDS is the tax deduction rate, which is 0.1% of the amount exceeding Rs. The tax deduction rate for TDS, i.e. the amount above Rs. 50 lacs, on the purchase of goods or services, is 0.1%. 50 lacs. TCS is a tax collection rate of 0.1% of the sale sum exceeding Rs. TCS is 0.1% of any sale amount exceeding Rs. 50 lacs.

  • Time of Deduction/Collection

TDS is deducted from a payment, but TCS is collected at the point of sale by the seller.

  • Responsible Person

TDS is taken by the person or company paying the payment. TCS is collected by either the individual selling the goods or the company selling them.

  • Deadlines

TDS must be deposited by the 7th day of each month. TCS can be deposited ten days after the month ends to the credit of the government.

Failure to deposit TDS or TCS with the Government

If they fail to timely pay TDS/TCS or file their TDS/TCS under Section 271H, the deductor or collector of taxes could face legal consequences. They could also face a maximum of Rs. 10,000 in fines. A maximum fine of Rs. 10,000 is possible. 1,00,000. If you fail to pay taxes

In addition, Section 201(1A of the Income Tax Act requires that you pay 1.5% interest per month if TDS is not deducted or late TDS payments are made. This applies from the date tax was deducted. The rate of interest charged for TCS calculations remains at 1%. The individual could also be held in prison for up to three years.

Tax compliance is crucial for individuals and companies. TDS can be refunded if it has been taken from your salary. However, you must file your returns in time. However, the TDS that you have been charged from your salary should be refunded if it is not deposited with the proper authorities.

Individuals can save taxes by purchasing life insurance, mutual funds, and other tax-saving tools.

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