Meaning of indirect taxes and the difference between TDS and TCS.
Introduction
The Government of India collects taxes from the general public in the form of direct taxes and indirect taxes. Direct taxes are paid directly by an individual to the government on the money they earned which includes income taxes, property taxes and taxes on assets.
On the other hand, indirect taxes are the taxes levied on the consumption of goods and services that are not directly levied on the income of a person. Instead, the customer has to pay the tax along with the price of goods or services bought by the seller. The seller will be paying the tax to the government and the person bearing the liability to pay the tax are the customers. In this case, the tax impact and tax incidence lies on two different people as compared to the direct tax which falls on the one person only.
There are different types of indirect taxes in India which are TDS, TCS, GST, stamp duty and others. In this article, we will provide all the details about the TDS and TCS differences, the two important indirect taxes which are often used interchangeably.
Meaning of TDS and TCS
Before understanding these two terms, what the TDS and TCS full form actually is. TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are the two types of indirect taxes.
TDS is one indirect method to collect the tax from the general public. It is collected at the time of point of the recipient's income. The two main concepts of TDS are “pay as you earn” and “collect as it is earned”. Income Tax Act clearly describes that any payments for certain expenses that fall within TDS scope are to be made after deducting a pre-decided percentage.
The payer of the tax to the Government is known as a deductor and the payee who receives the net payment is called the deductee. In other words, the deductor took a percent of the money and then deposited it as a tax. This way TDS is paid on earnings in advance not at a later time. The deductee receives the exact amount after TDS.
Here are some TDS rates for different payment types as of 10th December, 2022.
| S. No. | Type of payment | TDS rates |
1.
| Salaries | As per the tax slab announced in budget every year |
| 2. | Rental charges greater than ₹ 2,40,000 for buildings, land, plant and machinery | 10% for land and 2% for plant and machinery |
| 3. | Prize money for a lottery, horse race, crossword puzzle and others for more than ₹ 10,000 | 30% |
| 4. | Brokerage or commission from lottery ticket sales for more than ₹ 15,000 | 5% |
| 5. | Purchase of immovable property of more than ₹ 50 lakh | 1% |
| 6. | Single payment of ₹ 30,000 or aggregate payment of ₹ 1 lakh to a contractor | 1% for individuals and 2% for others |
What is TCS tax? Firstly, TCS tax full form is Tax Collected at Source and is the extra tax collected by a seller on the specified goods listed in Section 206C of the Income Tax Act, 1961. The seller then transfers the tax collected from the purchaser to the government and issues a TCS certificate to the buyer of such goods to get credit at the time of filing an ITR.
Here are some TCS rates for different goods purchased as of 10th December, 2022.
| S. No. | Goods purchased | TCS rates |
1.
| Tendu leaves | 5% |
| 2. | Alcohol | 1% |
| 3. | Timber wood from a forest on lease and forest produce | 2.5% |
| 4. | Motor vehicles worth more than ₹ 10 lakh and metals (including iron ore, lignite and coal) | 1% |
| 5. | Toll plaza, quarry, mine and parking lot | 2% |
Example of TDS and TCS
The TDS- TCS full form clearly tells us that D is deducted and C is collected in a sense that TDS is deducted and TCS is collected. So, let’s understand the difference between the two indirect taxes, TCS vs TDS with the help of an example and how TCS and TDS works differently.
- Suppose, you are an employee at a company where your salary is ₹30,000. At the time of payment of your salary, the company will deduct a prescribed percentage, say 10% from your salary in the form of TDS. You will receive the net amount of ₹27,000 and your tax deducted at the source will be ₹3000.
- Suppose you want to purchase timber from a timber trader for ₹60,000. But you will pay him a total amount of ₹ 61,500 which includes the pre-specified percentage of TCS amount (60,000 + 2.5% of 60,000). The surplus ₹1,500 is the TCS you will pay to the timber trader. While filing your ITR, you can claim a credit of ₹1,500 for the total tax liability. This is known as TCS credit.
What is the difference between TDS and TCS?
The points of TCS/ TDS difference can be many, but both taxes are levied at the point of origin of the payment.
| Points of Difference | TDS | TCS |
| Meaning | It is the tax deducted at the source itself by any individual or company making a payment if the amount exceeds a specified threshold. | TCS is the tax collected by the seller from the buyer at the time of the sale of mentioned goods. |
Expenses Covered
| It covers expenses such as interest, salaries, brokerage, commission, rent, horse race, etc. | TCS is applicable on the sale of items such as timber, minerals, liquor, toll plazas, etc. |
| Limits on Amount | As per Section 194Q, TDS is applicable on the purchase of goods given that the amount exceeds ₹ 50 lacs. | As per Section 206C (1H), TCS is applicable on the sale of goods given that the amount exceeds ₹ 50 lacs. |
| Applicability | TDS is applicable on any income other than the sale of goods. | Unlike TDS, TCS 'difference is that it applies only to the sale of goods. |
| Time of Deduction or Collection | Deducted when a payment is made. | Collected by the seller at the time of sale of specified goods. |
| Tax Impact | Deducted by the individual or the company making a payment to its client or customer. | It is collected by the individual or the company selling the goods. |
| Point of Deduction and Collection | Deducted when making a payment or debiting the books of accounts, whichever is earlier. | Collected when receipt of sales proceeds or debiting books of accounts, whichever is earlier |
Due Dates
| The due date to deposit TDS is the 7th of every month. | It should be deposited within ten days from the end of the month to the credit of the government. |
| Due date for Payment | 7th day of the next month, March – 7th April (Government deductors) and March - 30th (other deductors) | 7th day of the next month. |
| Late Fee for Default in Return Filing | ₹ 200 per day until default continues. | ₹ 200 per day until default continues. |
| Default in Disclosure of PAN | Flat TDS rate of 20%. | Twice the applicable TCS rate or 5%, whichever is higher. |
Conclusion
As you can see, there are many points on answering the question of what is difference between TDS and TCS which are the two indirect taxes levied in India. It is very crucial to keep track of all your taxes to avoid penalties or fines in the future. If TDS has been deducted from your salary, you can get refunds provided you file returns on time. If you have collected TCS, it should be your priority as a seller to deposit the collected TCS with the concerned authorities on time. To keep your business operations running smoothly, it is very useful to be clear on the points of TCS and TDS difference.
Is TDS and TCS same?
No, TDS is not the same as TCS and the basic difference between TCS and TDS is that TCS is collected by the seller of the specified goods whereas TDS is deducted at the time of payment of any sort of specified income.
Is TCS applicable if TDS is deducted?
Applicability of TDS and TCS on the same transaction is possible only under section 194Q of TDS and section 206C(1h) of TCS. However, both the sections are mutually exclusive i.e. if one section becomes applicable the other will not be applied. As per section 206C(1H), TCS will not be applicable if the buyer is liable to deduct TDS amount under any other provisions of the Income Tax Act.
Is TDS and TCS direct tax?
No, they are not the direct taxes but they are the two indirect taxes levied by the Government of India as per the Income Tax Act,1961.