Tax Deduction at Source Vs Tax Collected at Source: Meaning, Rates and More
There are both direct and indirect taxes that the government levies on goods and services. These serve as their primary source of income to carry on economic development in India. However, understanding these taxes can be confusing as indirect taxes have multiple divisions like TDS, TCS, and others.
To avoid any confusion and penalties, we have explained the difference between TDS & TCS in brief. Read on to know more.
What Does TDS Mean?
The full form of TDS is Tax Deducted at Source. As per Section 194Q of the Income Tax Act, all businesses and individuals must deduct tax at source if the amount increases to the limit of Rs. 50 lakh for purchase of goods and services. It is levied on legal fees, rent, consulting, technical assistance, royalty, legal fees, etc.
However, the government changes their rate every financial year. You can find details of this FY 2021-22 in the following section.
Another thing to know for a clear understanding of TDS is that the person making the deduction is called a deductor. On the other hand, the one receiving this deducted money is the deductee.
What Does TCS Mean?
TCS stands for Tax Collected at Source. It is an indirect type of tax sellers collect through their buyers at the time of sale. Under Section 206C of the Income Tax Act, it specifies that TCS is applicable for goods and services like timber, wood, scrap, minerals, etc. However, the threshold must exceed the Rs. 50 lakh limit.
Even though both deductions take place at the time of sale or purchase, there are many differences between TDS & TCS.
Who Is Responsible for Collecting or Deducting Tax at Source?
From TDS and TDS meaning, it is clear that persons selling a product or service are responsible for collecting and depositing TCS to the IT Department. At the same time, an individual or a company making payment should deduct and deposit TDS on goods and services.
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Know the Rates of TDS & TCS with an Example
The applicable tax rate for TDS & TCS is explained in the following tables. Remember that it varies depending on the product a person sells and the type of payment that one makes.
TDS applicable for different types of payments
| Type of Payment | Rate of Tax |
| Salary | As per the income tax slab |
| Payment of rent above Rs. 2.4 lakh for land, building, plant or machinery | Land & Building – 10%Plant & Machinery – 2% |
| Purchase of immovable property exceeding the limit of Rs. 50 lakh | 1% |
| Winnings above Rs. 10,000 from horse races, lottery, crossword puzzle | 30% |
| Single payment of Rs. 30,000 or an aggregate payment of Rs. 1 lakh | Individual & HUF – 1%Rest – 2% |
TCS applicable for different goods
| Type of Product | Tax Rate |
| Alcohol or liquor | 1% |
| Tendu leaves | 5% |
| Scrap | 1% |
| Timber wood from a leased forest | 2.5% |
| Motor vehicles that cost more than Rs. 10 lakh | 1% |
To understand who makes the deductions and submits the amount to the Income Tax Department, let us take two examples here:
Example 1
Suppose Mr Singh is an employee of X Company. X Company deducts a percentage of tax from Mr. Singh’s salary every month before giving him his final payout. In this case, the tax deducted at the source is TDS.
Example 2
Let’s say Mr Sharma is a trader of Tendu leaves. He sold one pack of Tendu Leaves to Mr Sinha, and at the time of sale, Mr. Sharma collected 5% as tax. This tax is known as TCS.
What Is the Due Date for Depositing the Tax Deducted & Collected?
There’s a difference between TDS & TCS based on their due date of depositing payment. To be precise, the deductor of TDS must submit the tax amount to the IT Department every month on the 7th day of the next month. However, there can be some exceptions in a few cases.
Contrastingly, TCS has to be submitted by the seller within the first 7 days from the last day of the month in which the collection was made. Additionally, it is mandatory to submit the TCS return every quarter.
How Much Does the IT Department Charge As Penalty for Not Submitting TDS & TCS?
If you fail to submit TDS on the 7th day of the next month, you will have to deposit a fine to the IT Department. Note that a penalty of 1.5% is applicable. On the other hand, if you fail to deduct the amount altogether, a fine of 1% is to be submitted.
In the case of TCS, a penalty of 1% is applicable on your tax amount.
However, this is not the only consequence one might suffer because of failure in TDS & TCS payment. There are other actions like:
- A person may have to face imprisonment of three to seven years in addition to a fine
- The government may also charge interest on the amount you fail to submit. Moreover, this interest is payable every month and can be included under deductions. Also, it continues until you deposit your tax amount.
Other Differences between TDS & TCS
| Basis of comparison | TDS | TCS |
| Applicability | Applicability of TDS extends to brokerage, salaries, commission, professional fees and others. | TCS must be submitted on the sale of minerals, forest produce, toll tickets, cars, etc. |
| Time of collection or deduction | It is deductible on the due date or payment date, whichever is earlier. | It is collected at the time of sale. |
| Consequence of non-availability of PAN | In case of PAN unavailability, the person may have to deduct the TDS rate as specified by the corresponding provision or 20%, whichever is higher. | If PAN is unavailable, a person must pay twice the rate mentioned in the provision or 5%, whichever is higher. |
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Final Word
The above are all the differences between TDS & TCS. Make sure you go through them for better understanding, as it forms an essential portion of the government’s income. Not to mention if you can deduct and deposit them on time, you can also claim a refund against them. Also, one can rule out any penalties and legal action due to non-payment.
FAQs
Ans: As per the Notification of CBIC 52/2018 under CGST Act and 02/2018 under IGST Act, one must collect 1% TCS. This means 0.5% will be under CGST, and 0.5% will be under SGST. But if the transaction is carried out in different states, then 1% will be entirely under IGST.
Ans: TDS provision under GST includes a deduction of 2%, including 1% under CGST and 1% under SGST or 2% under IGST. This is deductible on transactions involving the sale of goods and services.
Ans: Follow these steps to claim TDS & TCS:
Step 1: Sign in to the GST portal.
Step 2: Click on Services > Returns > Return dashboard
Step 3: After the file return dashboard appears, choose your ‘financial year’ and ‘return filing period’, then click on ‘Search.’
Step 4: Lastly, click on ‘prepare online.’
Ans: To register for TCS provisions under GST, e-commerce operators must fulfil conditions such as these:
1. They must have GST registration
2. The operators carrying on e-commerce operations, excluding those making supplies, must be notified under Section 9(5) of the CGST Act.
Ans: GSTR-8 will be applicable while filing a TCS return. Also, remember every e-commerce operator must file it within the first 10 days of the month in which they collected the tax. Also, a person can file it only when they submit the collected tax amount to their respective IT official.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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