When dealing with taxes in India, you may have come across terms like Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). These are important components of the tax system and affect various transactions. Both are methods used by the government to collect tax at the point of transaction, ensuring steady revenue collection. However, there is a clear difference between TDS and TCS, which this blog will explain in simple terms.
What is TDS, and when is it applicable?
TDS is a system where a certain percentage of tax is deducted when making payments, such as salaries, professional fees, rent, or income through interest. The person making the payment is responsible for deducting the tax before paying the recipient.
For example, if a company pays ₹50,000 as professional fees to a consultant, it may deduct 10% (₹5,000) as TDS before transferring the remaining ₹45,000. The deducted amount is then deposited with the government.
TDS is applicable in many cases, including:
Salaries paid to employees.
Interest earned from bank deposits.
Professional and consultancy services.
Rent payments above a certain threshold.
The recipient of the payment can claim the deducted TDS while filing their income tax return.
What is TCS and when does it apply?
TCS applies when a seller collects tax from the buyer at the time of sale. This tax is then deposited with the government. TCS is mostly applicable to specific goods and services, such as:
Sale of vehicles above ₹10 lakh.
Sale of minerals like coal or lignite.
Sale of liquor, timber, and scrap materials.
For example, if a car dealer sells a vehicle worth ₹15 lakh, they must collect 1% TCS (₹15,000) from the buyer and deposit it with the government. The buyer can later claim this amount while filing their tax return.
TDS versus TCS: How are they different from each other?
The difference between TDS and TCS lies in who deducts or collects the tax and when it is done.
Feature
TDS
TCS
Full form
Tax Deducted at Source
Tax Collected at Source
Who deducts/collects?
Payer (e.g., employer, company)
Seller
When is it applied?
While making payments like salary, rent, or professional fees
While selling certain goods and services
Who pays the tax?
The person receiving the payment
The buyer of goods/services
Understanding the difference between TDS and TCS helps individuals and businesses comply with tax rules and avoid penalties.
How can you check TDS and TCS details?
The Indian government provides multiple ways to check TDS and TCS details. If you use trading apps or manage business transactions, here’s how you can track these deductions:
Form 26AS: This form, available on the Income Tax website, shows all TDS and TCS deductions linked to your PAN.
TRACES portal: The TDS Reconciliation Analysis and Correction Enabling System (TRACES) allows taxpayers to view and correct their TDS details.
Bank statements: If you receive interest income, your bank will usually mention TDS deductions in your statements.
Trading apps: If you invest in stocks or mutual funds, check whether your broker deducts TDS on transactions.
Common misconceptions about TDS and TCS
Despite their widespread application, many taxpayers misunderstand how TDS and TCS function. Here are some common misconceptions:
TDS and TCS are additional taxes: Many people believe that TDS and TCS are extra taxes that increase their tax liability. However, these are advance tax payments deducted at the source, and individuals can claim them while filing income tax returns.
Only businesses need to worry about TDS: While businesses frequently deal with TDS, individuals earning salaries, receiving income through interest, or renting out properties are also subject to TDS. Knowing the applicable rates can help them plan their finances better.
TCS applies to all transactions: TCS is applicable only to specific goods and services, not every sale. Buyers should check whether TCS is included in their purchases and claim it in their tax returns accordingly.
TDS deduction means no further tax liability: Just because TDS is deducted does not mean an individual’s tax obligation is settled. If their total tax liability is higher, they may need to pay additional tax while filing returns.
By understanding these aspects, taxpayers can ensure better compliance and financial planning
What are the penalties for not deducting or collecting TDS and TCS?
Failing to deduct or collect TDS and TCS can result in penalties:
Non-deduction or non-collection: A penalty equal to the tax amount may be imposed.
Late deposit: Interest charges apply if TDS or TCS is not deposited on time.
Non-filing of returns: A fine of ₹200 per day can be levied for late filing of TDS/TCS returns.
Businesses and individuals should regularly check their tax obligations to avoid unnecessary penalties.
Ensuring smooth tax compliance with TDS and TCS
Understanding what TDS and TCS are is essential for anyone involved in financial transactions in India. TDS is deducted by the payer before making a payment, whereas TCS is collected by the seller at the time of sale. Both are key tax collection methods that ensure timely revenue for the government.
If you use trading apps or run a business, checking TDS and TCS deductions regularly can help with better tax planning. Keeping track of Form 26AS, bank statements, and the TRACES portal ensures that you do not miss any deductions.
Staying informed about the latest TDS and TCS rates and filing returns on time will help you avoid penalties and manage your taxes efficiently. Whether you are a salaried employee, business owner, or investor, understanding these tax mechanisms will help you comply with tax laws while optimising your financial planning.
Disclaimer:
The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.
We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.
The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a reason to buy/hold/sell any stock or a mutual fund. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.
Mutual Funds are subject to market risks, and you should pay close attention to risk factors before investing. We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.
Scan QR code to download Ventura App
For android only
Thank you for showing interest in the all-new Ventura App.
While we’re live for Android, we’ll soon be available on iOS, stay tuned.
