Income tax, direct taxes, and indirect taxes are all collected by the government. Individuals who make money are subject to direct taxes, which are paid to the government directly. Indirect taxes, on the other hand, are the duty of the seller to deposit with the government.
Also Read: TDS Return Filing
TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are two instances of government-imposed indirect taxes. These names are sometimes used interchangeably. However, there is a distinction to be made between TDS and TCS.
What exactly is TDS?
TDS (Tax Deducted at Source) is an indirect tax in which revenue is collected directly at the source of the recipient’s income. The concept of ‘pay as you earn’ and ‘collect when it is earned’ is used by TDS.
According to the Income Tax Act, any payment subject to TDS must be made after a certain proportion has been deducted. A firm or an individual must deduct tax at the source for payments of more than 50 lacs for the purchase of goods and services, according to Section 194Q. This can include legal fees, technical services, rent, and other costs.
The company or individual who deducts TDS is known as the deductor, while the person who receives the money is known as the deductee. The TDS method ensures that income tax is charged in advance rather than later, and that the receiver receives tax-deducted income directly.
What exactly is TCS?
TCS stands for Tax Collected at Source, which is a tax placed on goods by sellers and collected from customers at the point of sale. The vendor then pays the government the tax that was collected.
Section 206C of the Income Tax Act of 1961 lists the items on which TCS can be imposed. Timber, wine, minerals such as lignite and coal, parking lots, toll plazas, and other things are among them. TCS has a restriction of Rs. 50 lacs on goods sales.
TDS and TCS examples
Let’s look at an example to assist us grasp the distinctions between the two:
Assume you work for a firm that pays you Rs. 20,000 per month. The employer will deduct a set proportion of your salary in the form of TDS at the time of payment. Let’s imagine the TDS that applies is 5%. As a result, you will receive Rs. 19,000, with Rs. 1000 in tax deducted at source.
TDS vs. TCS: What’s the Difference?
At the time of payment origination, TDS and TCS are charged. However, there are a few notable differences between the two forms of taxes:
TDS is the tax deducted at the point of sale by any individual or corporation making a payment that exceeds a certain amount. TCS, on the other hand, is the tax that the seller collects from the consumer at the moment of sale.
- Covered Transactions
TDS applies to the sale of lumber, minerals, liquor, and toll plazas, and covers expenses such as interest, salaries, brokerage, commission, and rent.
TDS, or tax on purchases of goods and services, is deducted at a rate of 0.1 percent of the amount over Rs. 50 lacs. TCS’s tax collection rate, i.e. for the sale of goods, is 0.1 percent of the selling amount over Rs. 50 lacs.
- Deduction/Collection Period
TDS is deducted from payments, but TCS is collected by the seller at the time of sale.
- Person Responsible
TDS is deducted by the person or business making the payment, while TCS is collected by the person or business selling the products.
- Due Dates
TDS must be deposited on the 7th of each month. TCS, on the other hand, is put to the government’s credit within ten days at the end of the month.