Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are both tax-related concepts in India, but they serve distinct roles in the tax collection process. Both TDS and TCS represent vital tax mechanisms in India, contributing to the effective collection of taxes by the government. Businesses and individuals who grasp and adhere to TDS and TCS regulations play a crucial role in facilitating punctual and precise tax payments. TDS involves the payer of income deducting tax from the payment and forwarding it to the government on behalf of the payee. TDS applies to a wide range of payments, including salaries, interest, rent, and professional fees. TCS is a system in which the seller of goods or services collects tax from the buyer and remits it to the government on the buyer’s behalf. TCS applies to a limited number of goods and services, such as precious metals, minerals, and e-commerce transactions. The primary distinction between TDS and TCS lies in the process: TDS is deducted from the payment, while TCS is collected from the buyer. Additionally, TDS has a broader scope, covering a wider range of payments compared to TCS.
Which categories of income are subject to tax deduction or collection?
TDS encompasses a broad spectrum of income types, including salaries, rent, professional fees, brokerage, commission, interest, dividend, lottery winnings, gambling winnings, prize money, insurance commission, and payments to contractors. On the other hand, TCS applies to a specific set of goods and services, such as timber, scrap, mineral ore, e-commerce goods, foreign currency sales, and payments for remittances.
Here’s a more comprehensive breakdown of the income and transactions subject to TDS and TCS:
TDS
Salary/Rent/ Professional fees/ Rent/ Brokerage/ Commission/ Interest/ Dividend/ Lottery winnings/ Gambling winnings/ Prize money/ Insurance commission/Sale of property/ Payments to contractors etc.
TCS
Sale of timber/ Sale of scrap/ Sale of mineral ore/ Sale of e-commerce goods/ Sale of foreign currency/ Payment for remittances etc. Also, the list of goods and services subject to TCS may change over time.
Why are TDS and TCS imposed?
The introduction of TDS and TCS serves the dual purpose of thwarting tax evasion and streamlining the process of tax collection and administration.
TDS operates as a mechanism in which the payer of income withholds and remits tax to the government on behalf of the payee. This procedure guarantees upfront tax payments, ensuring that the government promptly receives its revenue.
TCS functions as a mechanism where the seller of goods or services collects tax from the buyer and transfers it to the government on behalf of the buyer. This simplifies tax collection and administration by reducing the number of taxpayers obligated to file tax returns.
How does the government benefit from TDS and TCS?
Both TDS and TCS assume critical roles within the Indian tax system, contributing to equitable and efficient tax payments while alleviating the burden on taxpayers.
Here are some specific benefits of TDS and TCS:
Prevention of tax evasion: TDS and TCS act as safeguards against tax evasion, ensuring that taxes are paid upfront and promptly, which ultimately secures government revenue.
Simplified tax collection and administration: TDS and TCS streamline tax collection and administration by reducing the number of taxpayers obligated to file tax returns, making the process more efficient.
Enhanced tax compliance: TDS and TCS promote higher tax compliance as they create obstacles for taxpayers seeking to evade their tax obligations.
Reduced tax burden on taxpayers: TDS and TCS alleviate the tax burden on individuals by collecting taxes at the source, eliminating the need for certain types of income to be reported in tax returns.
Overall, TDS and TCS serve as essential tools that aid the Indian government in collecting taxes efficiently and equitably.
TDS and TCS rates vary
TDS rates are subject to variation depending on the transaction’s nature, with distinct rates specified for various payment types. Likewise, TCS rates may fluctuate based on the type of goods being sold, with separate rates set for different categories of goods. The TDS and TCS rates are subject to variation based on the transaction’s nature and the specific goods or services involved.
Here are a few examples of TDS rates for various payment types. Under Sections 192 to 194Q of the Income Tax Act, TDS applies to payments made towards various services upon breach of different threshold levels.
Salary: 10-30%
Rent: 30%
Professional fees: 10%
Brokerage: 1%
Commission: 1-5%
Interest: 10%
v Dividend: 10%
TDS @ 1% is to be deducted on all Property Transactions which are above Rs. 50 Lakhs. Here are some examples of TCS rates for different types of goods:
Timber: 1%
Scrap: 0.1%
Mineral ore: 2%
E-commerce goods: 1%
Foreign currency: 5%
Remittances: 5%
Under Section 206C, TCS is applicable on the goods sale if the amount is more than Rs. 50 lakh @ 0.1% of sale consideration.
Person Responsible
TDS is to be deducted by the individual or entity making the payment. TCS is to be collected by the individual or entity selling the specified goods.
Due Dates
The due date for depositing TDS is the 7th of the following month, and TDS returns have to be submitted every quarter. TCS shall be deducted in the month in which the supply of goods is made and deposited in the designated banks of the government within ten days from the end of the month of goods supply.Filing of Quarterly Statements
There are three different returns to be filed for TDS – Form 24Q (about salaries), Form 26Q (about other than salaries), and Form 27Q (remittances to NRIs). For TCS, there is a single quarterly return in Form 27EQ.
As per Income Tax Act’s section 206 AA, those who do not give PAN – Permanent Account Number to the person making the payment, will be charged TDS at the following higher rates the rate specified in the corresponding provision of the Act or 20%
As per Section 206CC, anyone paying an amount liable to TCS shall provide their PAN to the person collecting the tax. If not, the tax will be collected at the higher of the following rates. Twice the rate specified in the corresponding provision of this Act or 5%
Both businesses and individuals must stay informed about the most recent TDS and TCS regulations and adhere to them to prevent potential penalties. Since the rates and regulations governing TDS and TCS can undergo alterations,
Seeking guidance from a tax expert is always recommended for the most current information.
Advocate Deepak Kumar Mohanty
Orissa High Court, Mob: 94372 95666
