What is TDS & TCS ?

TDS

Key Definitions:-

1.      The company or person that makes the payment after deducting TDS is called a deductor.

2.      The company or person receiving the payment is called the deductee.

The concept of Tax Deducted at Source (TDS) was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

It is the deductor’s responsibility to deduct TDS before making the payment and deposit the same with the government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is linked to the PAN of the deductor and deducted.

TDS is deducted on the following types of payments:

·         Salaries

·         Interest payments by banks

·         Commission payments

·         Rent payments

·         Consultation fees

·         Professional fees

TCS

Tax collected at source (TCS) is the tax payable by a seller which he collects from the buyer at the time of sale. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the purchasers.

When the below-mentioned goods are utilized for the purpose of manufacturing, processing, or producing things, the taxes are not payable. If the same goods are utilized for trading purposes then tax is payable. The tax payable is collected by the seller at the point of sale.

The rate of TCS is different for goods specified under different categories:

Type of Goods	Rate
Liquor of alcoholic nature, made for consumption by humans	1%
Timber wood under a forest leased	2.5%
Tendu leaves	5%
Timber wood by any other mode than forest leased	2.5%
A forest produce other than Tendu leaves and timber	2.5%
Scrap	1%
Minerals like lignite, coal and iron ore	1%
Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs	1%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs	1%
Parking lot, Toll Plaza and Mining and Quarrying	2%

   

Difference between TDS & TCS

Basis	TDS	TCS
Definition	Tax deducted on payments made by companies and individuals if the payment exceeds a threshold.	Tax collected by a seller when selling goods to a buyer
What does it apply to?	TDS deductions are made on payments including salary, rent, brokerage, professional fees, commission, interest etc.	TCS deductions are made on the sale of goods such as scrap, timber, mineral wood, tendu leaves etc
When does it apply?	On payments above a specified limit	On the sale of certain goods (barring those used for manufacturing or production)
Who does it apply to?	A person making a specified payment over and above a certain limit can deduct TDS according to the Income Tax Act 1961	A person selling specific goods can collect TCS according to the Income Tax Act, 1961

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