Difference Between TDS and TCS in Indian Taxation

  • Setindiabiz Team
  • April 15, 2023
Difference between TDS and TCS in GST
Taxation in India can often be complex, especially when it comes to understanding what TDS and TCS actually mean. Both TDS and TCS are forms of advance tax collection deducted and collected by their depositors while making certain transactions with the taxpayer. However, they are different in terms of who deducts or collects them, the types of transactions they apply to, and the rates at which they are charged. In this blog post, we will explore the difference between TDS and TCS in great depth and detail, and understand how they apply to different types of transactions in India.

What is TDS And TCS?

TDS and TCS are conceptually quite similar as both of these are forms of tax collections governed by the Indian Income Tax Act of 1961. But, when it comes to specific details of the collector, the collectee, the rates of collection and the manner in which the collected amount is deposited, there are quite a handful of differences which you must know. The understanding of these differences is not possible unless you have a thorough understanding of TDS and TCS meanings. So let us understand these meanings separately.

TDS Meaning & Full Form

TDS full form is Tax Deducted at Source. As the name suggests, it is basically a manner of tax collection where the tax levied on a concerned taxpayer is deducted at his source of income itself, and then deposited by the deductor to the relevant tax authorities. In other words, TDS can be referred to as tax deducted by a payer while making certain payments such as salaries, rent, interest, etc, to the payee. The deducted amount is then deposited to the government by the payer itself.
You must note here that the person actually liable for paying the tax is the payee, and the payer merely carries the legal responsibility of deducting and depositing the tax on the payee’s behalf. The rate of deduction for TDS varies depending on the type of payment, and the category of the payee involved. Moreover, if applicable, the payee can also claim credit for the deducted TDS amount while filing his income tax returns.

TCS Meaning & Full Form

TCS full form is Tax Collected at Source. TCS is collected by the seller of goods or provider of services, from the buyer, during the sale of goods or rendering of services. Note here, that unlike TDS where tax was being deducted and collected from the receiver’s income, here the tax is collected from the buyer over and above the cost of goods or services he pays.
Secondly, unlike TDS, where tax was not levied on the deductor, but was merely deducted and deposited by him, here the tax is both levied on and collected by the seller. Since, the tax levied on the seller for the sale of goods and services is indirect tax, its burden can be passed to the buyer and so, TCS is collected from the buyer.
After the TCS amount is collected, it is then deposited to the relevant tax authorities by the seller or service provider. The TCS rate varies depending on the type of goods sold or services rendered, and the category of buyer or service recipient involved. Moreover, if applicable, the buyer can claim credit for the TCS amount collected from him, while filing his income tax returns.
Understanding the full form and basic meaning of TDS and TCS is crucial for comprehending the difference between the two types of tax collections in India. Let’s delve further into the differences between TDS and TCS in the following section.

What is The Difference Between TDS and TCS?

The following table highlights the key difference between TDS and TCS. While both taxes serve the same purpose of collecting tax at source, the basic difference between TDS and TCS lies in terms of their applicability, mode of collection, rate of deduction / collection, and other parameters. A clear understanding of TDS and TCS differences is crucial for taxpayers and businesses to ensure compliance with the relevant tax laws.

TCS vs TDS : Points of Differences

Parameters of Difference TDS TCS
Mode of collection
Deducted by the payer of income
Collected by the seller of goods or provider of services
Applicability
Applicable to specified payments
Applicable to specified sales or services
Type of transaction
Payment of salary, rent, commission, interest, etc.
Sale of motor vehicles, scrap, minerals, works contract, etc.
Rate of deduction / collection
Fixed rate (as per the Income Tax Act)
Fixed rate (as per the Income Tax Act)
Threshold limit
Specified limit for each payment
Specified limit for each sale of goods or service
Time of Deduction
Payment is made or realized, whichever is earlier
During the sale of Goods or Services
Time of deposit
Monthly, 7th of every month
Only for months when the supply of goods / service takes place. Deposited within 10 days from the end of the month of supply
Certificate
TDS Certificate : Form 16A
TCS Certificate: Form 27D
Purpose
To deduct and collect tax at the source
To collect tax at the source
Refund
Can be claimed by the deductee
Can be claimed by the collectee
Responsibility
Deductor is responsible for compliance
Collector is responsible for compliance

TDS Return Filing Due Date & Applicability

A TDS Return is a statement that is required to be filed with the Income Tax Department of India, detailing the tax deducted at source by a person or an entity. The main reason to file TDS return is to provide the Income Tax Department with information on tax payments made by the taxpayer on behalf of their employees, contractors, or other payees. The TDS Return is filed in the form of an electronic statement, which contains information such as the PAN of the deductor and deductee, the amount of tax deducted, and the type of payment.
TDS Return Due Date: TDS Returns are required to be filed by all persons or entities who are responsible for deducting tax at source. This includes individuals, businesses, and government entities who have made payments that are subject to TDS. The due date for filing TDS Returns depends on the type of taxpayer and the frequency of tax deduction. Generally, TDS Returns are required to be filed quarterly, with the due dates falling on the 31st of July, October, January, and May for the respective quarters.
Wondering How to File TDS Return After the Due Date? Well, it is crucial to file TDS Returns within the due date to avoid penalties and other consequences. Failure to file TDS Returns within the due date can result in late filing fees and penalties. Let us discuss each of these one by one.
Late Filing Fee: Delayed Filing of TDS Returns leads to late filing fees of Rs.200/day of default. However, such late fees cannot exceed the amount of TDS payable. Late fees are mandatory to be paid by the Deductor in case of delayed filing of TDS returns.
Penalty: Over and above the late filing fees, the Tax Assessing Officer can also impose a penalty not less than Rs.10,000, extendable up to Rs.1,00,000, fully at his discretion.
Therefore, it is essential for taxpayers to ensure that they file their TDS Returns within the prescribed due date to avoid any late fees, penalties or other adverse legal or financial consequences.

Fundamental Difference Between TDS and TCS in GST

GST or Goods and Services Tax is a comprehensive indirect tax levied on the supply of goods and services in India. It has replaced several indirect taxes previously levied by the Central and State Governments. Under GST, both TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are applicable but there are major differences between the two. The basic difference between TDS and TCS in GST lies in their applicability, the threshold limits beyond which they are applicable, the rates of deduction and collection, the due date for depositing the tax collected, and so on.
TDS Under GST: TDS under GST is applicable when the sale of goods or services exceeds Rs.2.5 Lakhs. The rate of TDS under GST is 2% (1% CGST + 1% SGST for Intra-state sale and 2% IGST for inter-state sale) on the value of taxable supplies. TDS under GST can be deducted only by Government Departments, agencies, PSUs, or societies established by the Central / State Government. Besides, the deductor would be liable to pay TDS by the 10th day of the immediately following month, from the date on which the supply was made.
TCS Under GST: On the other hand, TCS under GST is applicable to e-commerce operators who are required to collect tax at source from the seller on the net value of taxable supplies made through their platform. The rate of TCS under GST is 1% (0.5% CGST + 0.5% SGST for intra-state supply or 1% IGST for inter-state supply) of the net value of taxable supplies made through the e-commerce platform. The e-commerce operator is required to collect TCS and deposit it to the Government within 10 days from the end of the month in which the supply is made.
The fundamental difference between TDS and TCS under GST is that TDS is deducted by the buyer at the time of making the payment, whereas TCS is collected by the e-commerce operator from the seller before making the payment to the seller. Additionally, TDS is applicable to all businesses registered under GST where the sale of goods / services exceeds the threshold of Rs.2.5 Lakhs, whereas TCS is applicable only to e-commerce operators registered under GST.

What Are The Benefits of TDS and TCS Under GST?

TDS and TCS under GST are tax collection and deduction mechanisms that help the government track business transactions and ensure that taxes are being paid correctly. While they are mandatory for certain transactions, they also come with several benefits for businesses.
  • Easy Compliance: TDS and TCS mechanisms are relatively easy to comply with, especially with the help of technology. Businesses can easily file returns, pay taxes, and comply with GST regulations, ensuring that they are always on the right side of the law.
  • Improved Cash Flow Management: TDS and TCS mechanisms help businesses better manage their cash flow by reducing the amount of tax that needs to be paid upfront. By deducting or collecting the tax at the source, businesses can pay the net amount to the supplier, reducing the burden on their cash flow.
  • Better Control on Input Tax Credit (ITC): TDS and TCS mechanisms help businesses ensure that they only claim ITC for tax that has actually been paid. This is because the TDS and TCS amounts deducted or collected are automatically reflected in the GST portal, making it easier for businesses to claim ITC accurately.
  • Transparency: TDS and TCS mechanisms help bring transparency to business transactions and ensure that all parties involved pay their fair share of taxes. By tracking transactions through the GST portal, the government can monitor tax payments and take action against businesses that are not compliant.
  • Increased Tax Revenue for the Government: TDS and TCS mechanisms help the government collect tax revenue more efficiently and effectively. By ensuring that businesses are complying with tax laws, the government can collect more taxes, which can then be used to fund various development programs and initiatives.

In conclusion, TDS and TCS are essential mechanisms for ensuring tax compliance and reducing the tax gap. The differences between the two, including the parameters of differences mentioned in this blog make it important for businesses to understand which tax is applicable to their transactions. Adhering to the TDS and TCS provisions not only ensures compliance with tax laws but also offers benefits like reduced tax liabilities and improved cash flow. It is important for businesses to stay up-to-date with the latest changes and regulations related to TDS and TCS to avoid any penalties or legal repercussions. Overall, with the proper understanding and implementation of TDS and TCS, businesses can avoid any tax-related issues and contribute to the nation's development.

Conclusion

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