What is the Difference between TDS and TCS?

The difference between TDS and TCS is simple, TDS stands for Tax Deducted at Source and TCS stands for Tax Collected at Source. When an employee receives his salary then TDS is collected. TCS is applied to the purchase of goods like clothes, food etc.

Tax is a regular source of income for state and central governments for the welfare of the general public. There are two types of tax that the government collects: direct and indirect tax.

Both TDS and TCS come under the type of indirect taxes. The Department of Revenue applies Indirect tax on the consumption of goods and services.

What is TDS?

TDS means Tax Deducted at Source, which simply implies deducting the tax before crediting the income. When a person pays the rent, and professional fees or a salary then that person deducts TDS.
A company pays TDS to the Government which is deducted from the salary of employees within the specified time. The income tax slab rates for TDS change as per Government guidelines. Therefore it becomes necessary for the company to have a check over the income slab tax rates.

Example of TDS

Let's say Rahul earns 16,00,000 annually. Now the company needs to apply TDS as per the current income tax slab rates.

According to the financial year 2024 - 2025: Apply 30% TDS on 16,00,000.

Here is the salary of Rahul after TDS deduction :

For First ₹3,00,000: No tax.

₹3,00,001 to 7,00,000 : 5% of 4,00,000 = ₹20,000

₹7,00,001 to 10,00,000 : 10% of 3,00,000 = ₹30,000

₹10,00,001 to 12,00,000 : 15% of 2,00,000 = ₹30,000

₹12,00,001 to 15,00,000 : 20% of 3,00,000 = ₹60,000

₹15,00,001 to 16,00,000 : 30% of 1,00,000 = ₹30,000

Therefore TDS deduction = ₹20,000 + ₹30,000 + ₹30,000 + ₹60,000 + ₹30,000 = ₹1,50,000

What is TCS?

TCS means Tax Collected at Source. When an individual or consumer purchases goods or services like a car, grocery item, or electronic item the seller collects TCS. According to Section 206C of the Income Tax Act, 1961 sale of alcohol, forest products, scrap, minerals, etc. comes under TCS.

Example of TCS

Let's say Riya is purchasing a car from an automobile dealership for ₹20,00,000. According to the TCS, it becomes mandatory for the dealership to collect TCS @1% on the sale of automobiles.

TCS rate is 1% on the purchase of a vehicle that is above 10 lakhs.
TCS = 1% of ₹20,00,000 = ₹20,000
Therefore the dealership will get an extra 20,000 from Riya at the time of selling the car.

Also, Check - GST Calculator

TDS VS TCS

The difference between TDS and TCS is as follows :

TDS TCS

TDS is collected when the employer deducts a small part of the salary of an employee.	When a consumer buys a product like a grocery item then TCS collection takes place and the amount goes to the government in the form of tax.
TDS deduction happens from various sources like income, professional fees, interest, rent etc.	TCS collection comes from various good items like timber, scrap, minerals, alcohol etc.
The payer deducts the TDS before making the payment.	During the sales, the seller collects the TCS.
TDS rates vary as per the payment. The income tax slab rates are different for different types of payments.	In TCS rates also vary according to the category of goods.
If the price of an item exceeds 50 lakhs then TDS is applied under section 194Q	For an item, if the selling amount is above ₹50 lakhs then the TCS rate is 0.1%.
The returns are submitted every quarter, for Form 24Q(salary payment), Form 26Q(for others except salaries) and Form 27Q(for payments to NRI).	In TCS every fourth month return is filed for Form 27EQ.

FAQ’s

Q.1 How to claim TDS?
Ans. To claim TDS you have to file an income tax return(ITR) for the financial year. Make sure you have all the required documents before filing the income tax return.

Q.2 Who is liable to deduct salary on TDS?
Ans. The person who pays the amount is liable to deduct salary on TDS. For example, an employer can deduct the TDS from the salary of his employee.

Q.3 What are TCS and TDS in GST?
Ans. TCS stands for Tax Collected at source. The seller collects the TCS while selling the products. TDS is Tax Deduction at source, employer deducts the TDS before paying the salary.