written by | May 18, 2022

What are the Differences Between TDS and TCS?

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Table of Content


The Indian Government implements two types of tax on businesses and individuals: Direct and indirect taxes. Direct tax is assessed directly on the individual and paid directly to the government, and nobody else can pay the tax or pass it to some other organisation. Hence, we call it direct.

The indirect tax applies to the purchase of services and goods in India but not to the earnings of any person. It's possible to transfer this tax from one business to other companies or from one person to another, and it may depend on the transaction's nature and the items or services you sell or buy. In addition to income tax, GST is an instance of indirect tax. There are 2 kinds of tax in indirect taxation: TDS and TCS. Today, let us learn about TDS and TCS differences.

Did You Know?

Unlike the gross debt service ratio, the total debt service ratio includes housing/non-housing obligations and debts. A TDS ratio below 43% is generally compulsory to avail of a mortgage, with several lenders adopting more strict levels.

Also Read: Everything You Need to Know About Self Assessment Tax

Definition of TDS

Let’s begin by first understanding the TDS and TCS meaning. As the name implies, TDS is one indirect method to collect the tax. It is the process of collecting revenue according to the recipient's income. It includes the concept of "pay as you earn" and 'collect as it is earned." As per the Income Tax Act, any payments for certain expenses that fall within TDS scope are to be made after reducing a described percentage.

In other words, when paying, the payer took a percent of the money and then deposited it with the Indian government. This way, he paid the taxes on earnings in advance, not at a later time. The recipient receives the exact amount after TDS. Expenses examples that include TDS include the salary, commissions, casual income investment interest, fees, the payment of rent, brokerage, etc.

You will learn the exact definition of TCS in the following section

Definition of TCS

In India, in the case of the sale of some specific goods, the tax is imposed by the seller's business at a prescribed rate from the buyer or payer of the specific class of goods, known as TCS (Tax Collected at Source).

The seller will then transfer this tax (which the buyer paid) to the government. Also, he must issue the government with a TCS certificate. In exchange, the purchaser of these goods will receive credit. These include liquor and tendu leaves scrap, liquor (alcoholic nature), the toll plaza bullion (over ₹2 Lakhs), the parking area, jewellery ( greater than ₹5 lakhs), and more. 

The cost of TCS differs for various items. Do you know the key differences between TDS and TCS? The following table will help you to provide the complete information.

What Are The Key Differences Between TDS and TCS?

The distinction between TDS and TCS is easily discernible from the following factors:

Parameters

Tds/Tax Deducted at Source

Tcs/Tax Collected at Source  

Meaning

Amount deducted from the recipient's income in the form of tax.

Amount collected as tax by the corporation or the seller.      

Nature

It is an expense.

It is an income.     

Applicability 

It is imposed when a payment exceeds a specific threshold.

It is levied on the sale of a certain item or set of items.   

Person responsible for deduction and collection

The payer is the one who deducts it.

The seller or payee is the one who collects it. 

Occurrence

TDS is credited to the payee's account or deducted at the time of payment, whichever comes first. However, it is deducted at the time of payment for life insurance premiums and salary payments.

TCS is deducted from the buyer or during receipt, however when jewellery or bullion is sold, TCS must be collected when cash is received as payment.

Ever wondered about the benefits of TDS and TCS under GST? Here is your answer.

The Benefits of TDS and TCS Under GST

TDS and TCS under GST offer numerous advantages. Both are part of GST, and the government implemented these in the hope of improving tax-evasion regulations. 

From a supplier's or deductee's viewpoint, there will be an automatic reflection in the electronic ledger after the deductor has filed their tax returns within the TDS system. The deductee can take credit in their electronic cash account regarding this tax, and he can use it to pay other taxes according to his convenience.

TDS is a major factor in helping the non-organised sector comply with tax laws and helps prevent fraud. In the same way, TCS in GST regulates the sellers on the internet, and it monitors the transactions and ensures prompt payment of taxes to the government.

Also Read: Format for Income Tax and TDS Password with Examples

TCS in GST for the e-Commerce Sector

Section 52 is the CGST law that requires all e-commerce aggregators to collect TCS into GST. E-Commerce aggregators are now accountable in the GST law to deduct the tax and deposit 1% on every transaction.

All traders or dealers selling products or services online will receive the money after deducting the tax rate of 1% (0.5% CGST plus 0.5% SGST).

It's a significant modification that has increased administrative and compliance costs for online aggregators. These aggregators include Flipkart, Amazon, Snapdeal and many more. They must deposit taxes by the 10th day of next month, using the form GSTR-8.

All dealers or traders selling products or services online will compulsorily conduct GST registration to claim the tax deducted by online commerce operators regardless of whether their turnover is lower than the threshold required for GST registration.

Legal Forfeited Actions for Not Filing TDS and TCS

If individuals fail to make tax payments or deposit taxes, they could be subject to legal enforcement. This is a penalty equal to the tax, which was not taken out or deducted.

The individual could be facing the possibility of a sentence ranging from three to seven years in prison and the possibility of a fine, considering the situation. Interest might be assessed if TDS is not deposited or TCS is not paid.

You need to pay interest for the monthly tax amount that is eligible for deductions.

If tax is deducted at source, the interest is calculated for every month beginning from the date tax was made eligible for deductions until the day it is removed (1%) to the state.

The interest rate on TCS's loan remains at 1%.

TDS vs TCS

Recognising the TDS and TCS difference is usually the person's duty responsible for paying/collecting tax. If income is taxed in the manner you earn it, it's known as TDS.

If the seller of specific products can collect tax at the time of sale on behalf of the government, we call it TCS. Understanding the TDS TCS difference is crucial for buyers/sellers, and they will know the amount of tax they need to pay besides other rules and regulations.

Conclusion

Being on top of your tax obligations is among the most important aspects of running a successful business. If you've taken TDS or have collected TCS, ensure that you pay it to the government's credit to ensure that your business runs smoothly. If tax deduction happens from your earnings, ensure that you file your taxes in time. You can use tax-saving tools like insurance, mutual funds, etc. There's a chance for you to get a small refund!
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FAQs

Q: What is better for a taxpayer - TDS vs TCS?

Ans:

Both of these serve entirely different purposes. Depending on your transaction role, you'll have to pay TDS or TCS.

Q: When did the latest rules come for TDS and TCS?

Ans:

In 2021, the government added two new rules.

Q: TDS vs TCS, which system is older?

Ans:

Both these tax systems are a part of the Income-tax Act of 1961.

Q: What is the difference between TDS and income tax?

Ans:

TDS is a tax deduction at the source, and tax is taken out directly from your source just as long as you prove that you've earned tax-deductible income. Income tax is due for the year's income, whereas TDS is taxed from the source of income every month throughout the year.

Q: What exactly are TDS and TCS under GST?

Ans:

TCS under GST is the tax an online retailer imposes from the amount of consideration it receives on behalf of the provider of services/goods that are a part of the operator's platform. TCS is assessed as a percentage of the net tax-deductible supply(TDS).

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.