What is The Difference Between TDS and TCS? - Enterslice

Under the roof of income tax, the total income of an assessee for the previous year is taxable in the Year of assessment. Such a levy of tax becomes the primary source of income for the government. Several provisions are provided in the Act through which one can recover tax on their income in the prior year. It can be done through Tax Deducted at Source & Tax Collected at Source, i.e., #TDSandTCS.

#TCS and #TDS refer to obligation that is deducted during the payment takes place or received, and deposited to the Department of #IncomeTax. Both of them have significant differences.

TCS in Brief

In India, Whenever a distinct item is sold, the company collects some valuable amount as Tax at prescribed rates from the buyer/purchaser or the payer of such amount. It is known as TCS (Tax Collected at Source). The seller needs to transfer such tax amount collected to the government and circulate a #TCScertificate, and the buyer or purchaser of those goods gets the credit. Such items cover bullion, jewellery, liquor, etc. The rate of TCS computation may vary for different items.

TDS in Brief

TDS is an indirect path of receiving one’s tax where the revenue is directly collected at the recipient’s income. As per the Income Tax or #ITAct of 1961, any payment on a particular expense falling under the ambit of TDS must be settled after deducting the designated per cent.In brief, TDS means that while making the payment, the payer reserves some amount which has to be deposited with the government. In this manner, Income tax via TDS is levied in advance and the recipient gets the net amount.

Difference between TDS and TCS

• TDS is deducted from the recipient’s income in the form of tax. On the other hand, TCS is an amount that is collected by the seller or company as tax.
• TDS is deducted by the payer while TCS is collected by the payee or seller.
• TDS is an expense while TCS is an income.
• TDS is credited to the account of the payee or at the time of payment, whichever is earlier, but in the case of life insurance premium and at the time of salary payment, it is deducted during payment. On the other hand, TCS is debited from the buyer or during receipt, but when jewellery or bullion is sold, TCS must be collected when consideration is obtained in cash.

Let’s throw light on the difference between TDS and TCS with the help of an example.Suppose Mr. X works in a firm, and while making salary payment to X, the employer further deducts tax at applicable rates. Tax deducted at source refers to the amount which is deducted from X’s salary.

Alternatively, Z, who is a trader, trades in particular goods. Z sells some of his goods to Y. During the sale of his goods, Z collects a tax of a specific amount. A specific amount is collected as tax by Z from his customer Y. This form of tax is known as Tax collected at the Source.

What will happen in case of failure to deposit TCS or TDS?

Cases wherein an individual fail to deposit or #collectTax, then such a person will have to face legal consequences. Such consequences entail a penalty equal to the tax that hasn't been collected or deducted. Furthermore, the individual can also face imprisonment as well as payment of a fine as prescribed.

In case of failure to deposit TCS or TDS, Interest can also be charged. The interest must be paid on a monthly tax amount, which will be further eligible for #deductions. For every single month from the date, tax shall be fit for deductions, interest would be assessed until the date it is deducted finally or paid off.

The Final Words

The government collects both direct as well as indirect taxes in order to generate revenue. TDS and TCS are two of the significant taxes levied on individuals. It is the responsibility of the taxpayer to fulfil their tax obligations within the prescribed time limit.

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