9 Differences: Tax Deducted at Source (TDS) vs. Tax Collection at Source (TCS)
The Indian government has implemented two tax collection mechanisms, TDS (Tax Deducted at Source) and TCS (Tax Collected at Source).
The following are the main differences between TDS and TCS:
TDS applies to specific payments, such as salaries, interest, rent, and professional fees, made by individuals or entities. The person making the payment deducts a percentage of tax at the time of payment and remits it to the government.
TCS applies to the sale of specific goods by a seller. The seller collects a percentage of tax from the buyer at the time of sale and remits it to the government.
(2) Collection Point:
The person making the payment is responsible for deducting and depositing TDS to the government, while the seller is responsible for collecting and depositing TCS to the government.
(3) Nature of Transaction:
TDS is deducted on various payments made by a person to another person, including salaries, interest, rent, and professional fees, while TCS is collected on the sale of specific goods as mentioned in the Income Tax Act.
(4) Rate of Tax:
The rate of TDS varies depending on the nature of the payment, while the rate of TCS varies depending on the nature of the goods being sold.
(5) Reporting and Compliance:
The person deducting TDS is required to issue a TDS certificate to the payee, file TDS returns periodically, and provide the necessary information to the Income Tax Department. The person collecting TCS is required to issue a TCS certificate to the buyer, file TCS returns periodically, and provide the necessary information to the Income Tax Department.
TDS aims to prevent tax evasion and facilitate the smooth collection of taxes by deducting a portion of the payment at the time of making the payment. TCS helps in tracking and collecting tax on specific goods to ensure proper tax compliance and revenue generation.
(7) Applicability to different entities:
TDS is applicable to individuals, businesses, organizations, government departments, etc., who make specified payments, while TCS is applicable to sellers engaged in the sale of specific goods.
(8) Timing of tax collection:
TDS deducts tax at the time of payment, while TCS collects tax at the time of sale.
(9) Credit for the taxpayer:
The tax deducted at source can be claimed as a credit while filing the income tax return, while the tax collected at source is not directly credited to the taxpayer but can be considered as a payment already made and adjusted against the final tax liability.
Overall, TDS and TCS differ in their purposes, applicability, timing of tax collection, rates of tax, and the impact on taxpayers.
Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].