Key Difference – TDS vs TCS
Indirect tax is a main source of income for governments since it often amounts to a major portion of the revenue that will be used in a number of development projects. TDS (Tax deducted at source) and TCS (Tax Collected at Source) are two terms given for types of indirect taxes collected in India. The key difference between TDS and TCS is that TDS is an indirect tax deducted from the income earner as and when the income is earned whereas TCS is a form of indirect tax collected by seller from the buyer at the point of sale of certain specified items.
CONTENTS
1. Overview and Key Difference
2. What is TDS
3. What is TCS
4. Similarities between TDS and TCS
5. Side by Side Comparison – TDS vs TCS in Tabular Form
6. Summary
What is TDS?
TDS (Tax deducted at source) is an indirect tax deducted from the income earner as and when the income is earned. TDS is governed by the Indian Income Tax Act of 1961. It is managed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue managed by Indian Revenue Service (IRS). It has an increased significance while conducting tax audits. The permissible TDS percentage typically range from 1% to 10%.
While TDS is payable at various sources, the main objective of TDS is to ensure that tax is paid on salaries earned every month. TDS from salaries is among the highest contributors to the revenue of the government since this is collected throughout the year. TDS on dividends and TDS on immovable property are two other components of TDS.
TDS on Dividends
- TDS rate on dividends is payable at the rate of 10%. If the recipient of income doesn’t supply his PAN (Permanent Account Number) to the deductor, TDS is to be deducted @ 20%.
- If an amount of dividend is to be paid to a shareholder, it should be paid by account payee cheque in case the payment does not exceed Rs. 2,500
TDS on Immovable Property
- TDS at 1% is deductible on all property transactions conducted which exceeds the value of Rs. 50 lakhs.
Figure 01: Income tax is a main form of TDS.
What is TCS?
TCS (Tax Collected at Source) is a form of indirect tax collected by seller from the buyer at the point of sale of certain specified items. TCS is governed by the section 206C of Income Tax Act 1961. TCS is charged by the seller from the buyer at the time of purchase of the selected items at a prescribed rate. Central governments, state governments, local authorities, partnership firms and co-operative societies are classified as sellers for tax collected at source purpose. Products on which TCS should be charged is specified under the Income Tax Act, 1961. These products include alcoholic liquor for human consumption, toll plaza, timber obtained under a forest lease and minerals being coal or lignite. The seller has to collect tax at specified rates from the payer who has purchased these items. The seller also has to issue a TCS certificate to the buyer upon collection so that the buyer is aware of the amount of tax he or she has paid. Tax collected then has to be transferred to the government by the seller.
Figure 02: Alcoholic liquor is a product on which TCS is charged.
What are the similarities between TDS and TCS?
- Both TDS and TCS are governed by the Income Tax Act, 1961.
- Both TDS and TCS are forms of indirect tax.
What is the difference between TDS and TCS?
TDS vs TCS |
|
| TDS is an indirect tax deducted from the income earner as and when the income is earned. | TCS is a form of income tax collected by seller from the buyer at the point of sale of certain specific items. |
| Control | |
| This is deducted by the buyer. | This is collected by the seller. |
| Products on which Tax is Charged/Collected | |
| TDS is collected on income, dividends and immovable property. | Alcoholic liquor for human consumption, parking lot, toll plaza are examples on which TCS is collected. |
Summary- TDS vs TCS
The difference between TDS and TCS can be mainly understood by the responsible party for paying the tax or collecting the tax. When income is taxed as it is earned, it is called TDS. When the seller of certain products collects tax at the point of sales on behalf of the government it is referred to as TCS. Knowledge regarding TDS and TCS is important for both buyers and sellers since they can be certain on how much tax is charged from them and relevant rules and regulations relating to collecting tax respectively.
Download PDF Version of TDS vs TCS
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References:
1. Agarwal, Prateek. “TDS on Dividend – Section 194.” TaxAdda. N.p., n.d. Web. Available here. 12 June 2017.
2. Fernandes, Sunil. “TDS Certificates: Its Importance And Why You Should Collect Them?” Goodreturns.in. Goodreturns, 25 May 2013. Web. Available here. 12 June 2017.
3. “Tax Collected at Source – TCS |Check Rates & Exemptions.” Bankbazaar. N.p., n.d. Web. Available here. 12 June 2017.
Image Courtesy:
1.”Effective Payroll Tax rate for Different Income Percentiles (2010)” By Guest2625 – Own work (CC BY-SA 3.0) via Commons Wikimedia
2.”931956″ (Public Domain) via Pixabay