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- 1. What is TDS and TCS?
- 2. Who is Responsible for Deducting or Collecting the Tax at Source
- 3. What is the Tax Rate?
- 4. What is the Due Date for Depositing the Tax Deducted or Collected
- 5. What is the Penalty for Not Depositing TDS or TCS with the Tax Department?
- Understanding TDS and TCS
- FAQS - FREQUENTLY ASKED QUESTIONS
Direct tax is one of the most significant sources of revenue for the government. For a taxpayer, tax planning is a vital component of financial planning. To reduce the tax burden, taxpayers closely check their income, investments, and purchase tax-saving products like insurance.But apart from direct taxes, like income tax, which is directly paid to the tax department by the taxpayer, there are other indirect taxes too. TDS and TCS are two of the biggest examples.If you’re a tax deductor or collector as per the IT Act , ensure that you collect and deposit the tax amount with the government as per the regulations to avoid penalties and other legal consequences.But these two taxes are often confused with each other as they are both applicable to the source of income. However, these two indirect taxes are very different from each other. Take a look-
1. What is TDS and TCS?
TDS or Tax Deducted at Source is a type of tax deducted by a payer when a certain payment is made to someone above a certain threshold. This payment can be in the form of salaries, interest, rent, professional fees, brokerage, commission, winnings, etc.TCS or Tax Collected at Source, on the other hand, is a type of indirect tax that is collected by a seller from the buyer when the latter makes any purchase from the former. According to the IT Act, there are only certain goods such as scrap, timber wood, minerals, etc. on which TCS is applicable.
2. Who is Responsible for Deducting or Collecting the Tax at Source
TDS is deducted by the person making any kind of payment covered under the gamut of this indirect tax. It is the responsibility of this person to deduct TDS from the payment amount and then deposit the same with the tax department.Similarly, the person selling the product covered under the gamut of TCS collects this indirect tax and deposits the same with the tax department.
3. What is the Tax Rate?
Another significant difference between TDS and TCS is the tax rate. With TDS, the tax rate varies based on the type of payment being made. Similarly, with TCS, the tax rate varies based on the type of product being sold.A few examples of TDS rates are as follows-
| Payment Type | TDS Rate |
| Salaries | As per the income tax slab |
| Rent above Rs. 2.4 lakhs paid for building, land, machinery, or plant | 10% for building and land, 2% for machinery and plant |
| Single payment of Rs. 30,000 or aggregate payment of above Rs. 1 lakh to a contractor | 1% for individuals and HUF, 2% for others |
| Purchase of immovable property above Rs. 50 lakhs | 1% |
| Horse race, lottery, or crossword puzzle winnings above Rs. 10,000 | 30% |
A few examples of TCS rates are as follows-
| Product Type | TCS Rate |
| Alcohol or liquor | 1% |
| Scrap | 1% |
| Timber wood from a leased forest | 2.5% |
| Purchase of motor vehicle above Rs. 10 lakhs | 1% |
| Tendu leaves | 5% |
4. What is the Due Date for Depositing the Tax Deducted or Collected
It is mandatory for the TDS deductor to deposit the tax amount with the tax department every month. In most cases, the due date is the 7thday of the following month in which the tax is deducted. There are a few exceptions in some cases.Similarly, TCS should be deposited by the seller within the first 7 days of the following month in which the tax was collected. Moreover, the seller also has to mandatorily submit quarterly TCS return.
5. What is the Penalty for Not Depositing TDS or TCS with the Tax Department?
If a deductor fails to deposit the TDS amount with the tax department within the prescribed due date, a penalty of 1.5% (simple interest) per month will be applicable on the tax amount. If the deductor fails to deduct TDS from the payment, a penalty of 1% per month will be applicable.For TCS, the non-payment or late payment penalty is 1% of the tax amount. In both cases, persistent offenders might have other legal consequences and can also be imprisoned for up to 7 years.
Understanding TDS and TCS
Now that you know some of the biggest differences between TDS and TCS , you might have understood that they’re not the same. Right from their applicability to their tax rate, there are some significant differences between the two even though both are deducted/collected at the source of income.If you’re a tax deductor or collector as per the IT Act, ensure that you collect and deposit the tax amount with the government as per the regulations to avoid penalties and other legal consequences.Ready to make the most of your money? Start your tax planning journey now!
FAQS - FREQUENTLY ASKED QUESTIONS
What are the two types of TDS ?
The two types of TDS are as follows:
Regular TDS
Regular TDS is deducted on various payments such as salary, interest, commission, rent, etc. For instance, if you receive a salary of Rs. 50,000 per month, your employer will deduct TDS from your salary as per the tax slab rate applicable to you.
TDS on the Sale of Property
TDS on property sales is deducted when buying or selling a property. If you sell a property, you must calculate TDS at 1% of the sale value if it exceeds Rs. 50 lakhs. The buyer needs to deduct this amount and submit it to the government on behalf of the seller. If the seller is a non-resident Indian (NRI), TDS is applicable at 20%, irrespective of the sale value.
It is important to note that other types of TDS exist, such as professional fees, rent, payments to contractors or freelancers, etc.
What happens if TCS is not deducted ?
Per section 206C(7), if the person in charge of collecting tax does not do so, or if they do so but fails to pay it to the government's credit by the deadline specified in this regard, he will be liable for paying a simple interest at a rate of 1% per month, or part thereof, on the amount of that tax. Interest will be charged from the day the tax was due for collection to the date it was paid.
What is the limit for TCS deduction ?
The limit for TCS deduction is Rs. 50 lakhs. Hence, on amounts above Rs. 50 lakhs, you must collect @0.1%.
How to claim TCS while filing ITR ?
To claim TCS while filing your ITR, follow these simple steps:
Your ITR form will have a section for "Schedule TCS". Fill in the details of TCS collected by you during the financial year.
You can claim a credit for the TCS amount against your tax liability. Ensure to enter the correct amount and other details, such as the name and PAN of the collector.
If the TCS amount exceeds your tax liability, you can claim a refund for the excess amount.
It's important to remember that TCS is not applicable in all cases and varies based on the type of transaction. So, check if TCS is applicable before collecting it from the buyer.
Is TCS applicable if TDS is deducted ?
If a buyer withdraws TDS as part of a transaction per the terms of the Income Tax Act, TCS is not applicable in this situation.
Who is eligible for TCS tax ?
Amount @2% will be collected from such parties as TCS from anyone who participates in a lease, licence, or contract for a parking lot, toll plaza, mining, or quarrying in addition to the sale of goods.
What is TDS formula ?
The general TDS formula is:
Average Income Tax Rate (ITR) = Income Tax Due (calculated using slab rates) / Anticipated income for the financial year
How to claim TDS and TCS ?
To claim TDS, you must first obtain Form 16 from the payer. This form contains details of the tax deducted from your income. You can then use this form to file your income tax return and claim a refund if the TDS deducted is more than your actual tax liability.
To claim TCS, you must first obtain Form 27D from the seller. This form contains details of the tax that has been collected from you. You can then use this form to claim a credit for the TCS paid while filing your income tax return.
Is TCS tax refundable ?
The customer will get a refund for the TCS amount without tax obligation. If not, the amount may be changed based on the year's overall tax obligation.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
