What is TDS and TCS. Difference between TDS & TCS?

What is TDS and TCS. Difference between TDS & TCS?
Tax Deduction at Source (TDS)
TDS - Tax deduction at Source - TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

Tax deduction at source means the tax required to be paid by the assesses, is deducted by the person paying the income to him. Thus, the tax is deducted at the source of income itself. The income tax act enjoins on the payer of such income to deduct the given percentage of income as income tax and pay the balance amount to the recipient of such income. The tax so deducted at source by the payer is to be deposited in the income tax department account. The tax so deducted from the income of the recipient is deemed to be payment of income tax by the recipient at the time of his assessment.
For example, person responsible for paying any income which is chargeable to tax under the head 'Salaries' is required to compute the tax liability in respect of such income and deduct tax at source at the time of payment.If the employee has any other income,he needs to inform the employer so that employer can take that income into consideration while computing his tax liability but he will not take into account losses except loss from house property.
Similarly, person responsible for paying any income by way of 'interest on securities' or any other interests are required to deduct tax at source at the prescribed rates at the time of credit of such income to the account of the payee or at the time of payment,whichever is earlier.
The income from the following sources is subjected to tax deduction at source
  • Salary and all other positive incomes under any head on income( Section 192 )
  • Interest on securities ( Section 193 )
  • Interest other than interest on securities( Section 194A )
  • Payments to contractors and sub-contractors( Section 194C )
  • Winnings from Lottery or crossword puzzles( Section 194B )
  • Winnings from horse races( Section 194BB )
  • Insurance Commission covering all payments for procuring Insurance business( Section 194D )
  • Any interest other than interest on securities payable to non-residents not being a company or to a foreign company( Section 195 )
  • Payment to non-resident sportsman including athlete or sports association/institution.In case of non-resident sportsman,payments in respect of advertisements as well as articles on any game/sports in India in newspapers,magazines,etc. is included (Section 194E)
  • Payment in respect of deposits under NSS[National Savings Scheme] (Section 194EE )
  • Payment on account of repurchase of Units by Mutual Fund or UTI(Section 194F )
  • Payment for Commission or brokerage(Section 194H)
  • Payment of rent (Section 194I )
  • Payment of fees for professional or technical services(Section 194J)
  • Commission to Stockist,distributors,buyers and sellers of Lottery tickets including remuneration or prize on such tickets(Section 194G)
  • Income from Units purchased in foreign currency or long-term capital gain arising from the transfer of such Units purchased in foreign currency (Section196B)
  • Payment of any income to non-residents in respect of interest or dividend on bonds and shares( Section 196C )etc.

Tax Collection at Source (TCS)
TCS - Tax collected at source - it means whenever you sell something which is covered by this section you need to collect tax from your customers with the sale invoice amount. Every person (seller0 shall collect tax from buyer of goods who are covered by section 206C(1) i.e. (Alcohilic liquor, Indian made foreign liquor, tendu leaves, Timber, Any other forest product, Scrap and partking lott, toll plaza, mining and quarrying.

Tax collection at source arises on the part of the seller of goods. Here, tax is collected at the source of income itself. It is to be collected at source from the buyer, by the seller at the point of sale. Such tax collection is to be made by the seller at the time of debiting the amount payable to the buyer to the account of the buyer or at the time of receipt of such amount from the buyer, whichever is earlier. A person collecting tax shall furnish a certificate specifying whether tax has been collected or not,what sum has been collected,the rate of tax applied on it and other such particulars as may be prescribed. It shall be furnished within 10 days from the date of debit or receipt of the amount furnished to the buyer to whose account such amount is debited or from whom such payment is received. The taxes collected must be remitted into the income tax department's account. Every person collecting tax shall, within such time as may be prescribed, apply to the Assessing Officer for the allotment of a tax-collection account number.
The following goods when sold must be subjected to tax collection at source :-
  • Alcoholic liquor for human consumption (other than Indian made foreign liquor).
  • Timber obtained under a forest lease.
  • Timber obtained by any mode other than under a forest lease.
  • Any other forest produce not being timber.
Full form of TDS is tax deduction source it is the tax which is deducted for the parties by company and it is a expense for company. Full form of TCS is tax collection source it is the tax which have to be collected by company from other's and it is a income for the company.


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