5 Difference Between TDS and TCS: Examples & Legal Repercussions

The difference between TDS and TCS is that TDS stands for tax withheld at source whereas TCS stands for tax collection at source.

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difference between tds and tcs

Difference between TDS and TCS as per Indian Government

According to the idea of income tax, each person’s assessment year will be taxed on the whole prior year’s revenue. The government’s primary source of income comes from this tax. The Act contains provisions that provide the recovery of income tax from the prior year. You may achieve this using TDS or TCS. The distinction between tax collected at source and tax deducted at source will be covered.

The Indian government imposes income tax, direct tax, and indirect tax. People who earn money are required to pay taxes directly to the government. On the other hand, indirect taxes are the seller’s and the Indian government’s obligation.

The difference between TDS and TCS is that TDS stands for tax withheld at source whereas TCS stands for tax collection at source.

TDS and TCS- A Brief Overview

TCS stands for tax collection at source and TDS stands for tax withheld at source.  The obligations that are subtracted at the moment of payment or receipt and subsequently filed to the Income Tax Department are referred to by these words. There are several significant variations between them.

What is TDS?

TDS, or Tax deducted from source, is an indirect method of receiving your tax. The Income Tax Act 1961 states that any payment made on an expense falling within the scope of TDS must be paid after deducting the percentage.

TDS simply means that the payer has reserved a certain amount to deposit with the government at the time they make the payment. The recipient then receives the net amount.

What is TCS?

A company collects a certain tax from the buyer or payer when a specific item is sold in India. This is known as Tax collected from source, or TCS. The seller must transfer the tax collected to the government. Different items may have different TCS calculation rates.

TDS and TCS differences

A table outlining the distinctions and their rationale is provided below.

PARAMETERS TDS/TAX DEDUCTED FROM SOURCE TCS/TAX COLLECTED FROM SOURCE
Significance A tax is a levy made from the recipient's income. Amount that the seller or company collects as tax.
Nature It's an expense. It's an income.
Application This penalty is applied to payments above a specified limit. It's imposed on the sale of particular items or goods.
Responsible for collection and deduction The payer deducts it. It is collected by either the seller or the payee.
Occurrence TDS is charged to the payee's account during payment or to their account during payment. However, whether paying a wage or a life insurance premium, it is deducted at the time of payment. TCS can be deducted from the buyer or received during receipt. However, TCS must be collected when jewelry or bullion is sold.

Example Of TDS & TCS

LPNR Group Ltd. pays a monthly office space rent of 50,000. Their monthly rent is Rs. 6 lakh. This sum exceeds the Rs. 2.4 lakh TDS non-deduction cap. PNR Group Ltd. will therefore pay 45,000 per month in rental payments and deduct TDS @ 10%, or 5,000 per month.

On his or her yearly income tax return, the office space owner will state a gross income of Rs. 6.00 lakh and claim a TDS of Rs. 60,000 (previously deducted) as a total tax obligation credit, or TDS credit.

Fail to deposit TCS/TDS?

A person will face legal repercussions if they don’t collect or deposit taxes. These repercussions may include a fine equivalent to the amount of unpaid taxes or deductions. The individual could also be sentenced to imprisonment and a fine.

If you do not deposit TCS or TDS the interest could be charged. The tax amount per month which is deductible is subject to interest payment. When tax is deductible the interest will be calculated.

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Conclusion

To generate revenue, the government of India collects both indirect and direct taxes. TDS and TCS, are the two main taxes that individuals pay. Taxpayers should ensure that they fulfill their tax obligations within the time limits. Investing in life insurance for example can help in deducting tax burden. TDS is a sum deducted as tax from the recipient’s income. TCS is a sum that the seller or business collects as tax.

If you still have questions related to the TDS and TCS or other questions. We are Odint Consultancy. We are here to assist you in any kind.

FAQ’s

If a person does not take or deposit the tax due, he could face a variety of legal penalties, including the possibility of a fine as high as Rs. 1,00,000.

TCS can be returned to the buyer of the product upon payment of taxes calculated according to the income tax law for the customer. The credit requested by the buyer is additionally required to be declared on the tax return for income.

It is not applicable when the buyer is required to deduct TDS for an identical transaction.

Buyers must state on Form 27C that they are eligible to receive an all-inclusive exemption from TCS. The declaration must state and demonstrate that the products which have been declared are meant for manufacturing and processing and not for trading.

The person who is making the payment is legally required in order to subtract tax on the base (TDS) at a predetermined rate. The payer is called the deductor, and the person who gets the net payment is known as the deductee.

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