• HDFC securities
• 22 Feb 2023
• Knowledge Centre

 

Taxation is an important aspect of every individual’s financial life. Tax planning can be a very helpful way to manage your finances. The government collects two types of taxes from the citizens. First is Direct Tax, which an individual pays directly to the government after earning income. The second is Indirect Tax which the seller has to deposit with the government. TDS and TCS are two examples of indirect taxes. Let us check out the meaning and key differences between TDS and TCS.

What is TDS?

TDS is Tax Deducted at Source. The tax is deducted by the payer at the time of making a payment to the payee and then is deposited with the government by the payer. TDS is deducted from various types of payments such as salaries, rent, professional fees, interest, and so on. The amount of tax deducted at source depends upon the type of income and the kind of taxpayer. The taxpayer can claim credit for the TDS deducted while filing their income tax return.

What is TCS?

TCS stands for Tax Collected at Source. It is a tax that is collected by the seller from the buyer at the time of sale of certain specified goods such as liquor, scrap, forest produce, and so on. TCS is collected at a specified percentage of the sale price, and the seller deposits the tax collected with the government. The goods and items that are subject to TCS are mentioned in Section 206C of the Income Tax Act. The buyer can claim credit for the TCS paid while filing their income tax return.

Example

Let us understand the difference between TDS and TCS with an example:

An employee receives a salary of Rs 50,000 from his company. If the TDS is applicable at the rate of 10%, the company will deduct 10% of the salary at the time of payment of the salary. Hence, the employee will receive Rs 45,000 and the tax deducted will be Rs 5,000.

Suppose person A buys timber from the trader for Rs 50,000. The trader will collect an additional 5% tax while selling, which is TCS. Buyer A will pay a total amount of Rs 52,500 (50,000 + 5% of 50,000) to the trader. The additional Rs 2,500 is TCS paid. Buyer A can also claim a credit of Rs 2,500 for the total tax liability while filing his Income Tax Return.

TDS Vs TCS

Check out the important points of difference between TDS and TCS:

Transactions

Transactions for expenses such as salaries, brokerage, rent, interest, commission, etc. are subject to TCS. Meanwhile, TCS is applicable on the sale of specified products like liquor, minerals, timber, etc.

Limits

TDS is levied on the purchase of goods worth exceeding Rs 50 lakh as per Section 194Q of the Income Tax Act. TCS is applicable on the sale of goods exceeding Rs 50 lakh as per Section 206C (1H).

Period

TDS is deducted whenever a payment is made. However, TCS is collected at the time of sale by the seller.

Responsibility

An individual or the company that makes a payment is liable to deduct the TCS. TCS is collected by the company or an individual who sells the goods.

It is essential for every individual or business to pay any TDS or TCS collected to the government’s credit. Moreover, it is also equally important to file the taxes on time if such taxes are deducted from the pay.