Tax Deduction At Source Vs Tax Collected At Source: Meaning, Rates And More

Income Tax

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. 

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

TCS applicable for different goods

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. 

Also Read: How To Save Income Tax Under Various Sections Of Income Tax Act?

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

Also Read: Section 32 Of The Income Tax Act

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. 

Frequently Asked Questions On TDS Vs TCS

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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.