What is TDS?
TDS (Tax Deducted at Source)
As per the Income Tax Act – persons who are making payments are required to deduct tax at source at prescribed rates. TDS is a means of indirect tax collection by Indian authorities, i.e., Instead of receiving tax from you on your income at a later date, the government wants the payers to deduct tax and deposit it with the government before hand.
TDS is deducted at the time of payment in cheque or cash or credit to the payee, whichever happens earlier. TDS is deducted on,
- Interest payment by banks.
- Payment of commission.
- While paying rent.
- Payments to lawyers or freelancers.
- Payments made to consultants.
For more doubts regarding TDS, please refer All about Tax Deductes at Source
Is TDS applicable to Individuals?
Some of the above requirements to deduct tax are not applicable to individuals.
For Example: Individuals are not expected to deduct TDS while paying fees to lawyers or doctors or while paying rent.
What is TCS?
TCS (Tax Collected at Source):
TCS has to be collected at the time of receipt of payment or at the time of debiting of the amount payable to the buyer, whichever is earlier. “TCS is the Tax Collected at Source by the seller (collector) from the buyer/ lessee (collectee/payee)”.
TCS is applicable to the following goods,
- Alcoholic liquor for human consumption.
- Tendu Leaves.
- Timber obtained under a Forest Lease.
- Timber obtained by any mode other than Forest Lease.
- Any other Forest produce not being forest timber or tendu leaves.
- Parking Lot, Toll Plaza, Mining and Quarrying.
- Minerals being Coal or Lignite or Iron ore (applicable from 1st July 2012), etc.
What is the difference between TDS and TCS?
TDS and TCS both are exactly opposite scenarios. The former is the deduction from the income of the recipient. The later is the amount collected by the company or others in the form of tax. So in short, TDS is a form of expense and TCS is a form of income.
Persons who are making payments are required to Deduct Tax at Source at prescribed rates. On the other hand, it is the responsibility of that person (seller or the company) to deposit the Tax Collected at Source to the Income Tax Department.
Every item that a seller sells is liable to tax for some percentage under section 206C. For those rates please refer TCS Rates.
TDS collected from the employees are also termed as TCS (Tax Collected at Source) which needs to be deposited to the IT department at the end of each and every FY (financial year).