Difference Between TDS and TCS, TDS vs TCS — 5 Best Points

To produce money for the nation, the Indian government charges both direct and indirect taxes. Direct taxes are collected on personal and business income, while indirect taxes are charged on the sale of products and services.

While, some taxes look similar like TDS and TCS. However, There is a big difference between TDS and TCS. Let’s Understand both of them in detail.

Difference Between TDS and TCS

TDS is a tax that is implemented on a firm’s payment to a consumer if the amount exceeds a particular threshold. TCS is a tax that sellers collect when they sell something to a customer.

TCS is deducted from the sale of certain products, such as lumber, waste, natural wood, and etc. Whereas TDS is deducted from payments such as salary, rent, professional fees, brokerage fees, and commissions.

What is TDS?

The full term of TDS is ‘tax deducted at source,’ and as the name implies, it is an indirect method of obtaining tax in which money is collected directly from the recipient’s income.

TDS is based on the principles of “pay as you earn” and “collecting when it is earned,” which means that tax collection is accelerated.

According to the Income Tax Act of 1961, any payment on certain costs that are subject to TDS must be made after a specified percentage has been deducted.

Example

Assume Mr. A is employed by a firm. Before making him the final payment, his employer deducts the relevant tax rate from his monthly compensation. TDS is the amount that is collected in this way.

What is TCS?

In India, a tax is charged by the firm or at defined rates from the buyer or payer of the designated category of products on the sale of particular items. Tax collected at source, or TCS, is the term for this.

The seller then pays the government the tax received from the buyer and provides a TCS certificate, which the buyer of such items would receive credit for.

Tendu leaves, scrap, parking lot, jewels, booze, toll plaza, bullion, and other goods are among these. For various goods, the TCS calculation rate is varied.

TCS Example

Mr. B is now working as a mineral wood merchant. Mr. C buys some mineral wood from him. Mr.B takes a 5% tax from the buyer when making the sale; this amount is referred to as TCS.

Originally published at https://profitmust.com on July 19, 2021.