The government collects taxes in two ways: directly and indirectly-
Tax deducted at source (TDS) and Tax collected at source (TCS) are two forms of indirect tax collection. Here, tax is levied at the source of income or transaction if it exceeds a certain limit. Failure to deduct or collect this tax can lead to penalties and interest.
Here’s how the two types of indirect taxes differ.
What is TDS?
TDS or (Tax deducted at source) is deducted at the source of one’s income. It is done by the person, organization or employer making the payment, or providing salary or income. This deducted tax is deposited to the Income Tax Department of India.
Why is it done?
To make sure the government gets tax in advance and people don't hide income.
The person from whose income the tax is deducted is called the deductee, and the one who deducts the tax before making the payment is known as the deductor. The applicable TDS rate depends on the type of income—such as salary, rent, interest, commission or brokerage, property purchases, or professional fees—and may vary accordingly.
Example- You are a company paying ₹1,00,000 to a contractor.
You must deduct TDS, say ₹10,000 (assuming 10%), and pay ₹90,000 to the contractor.
You then deposit ₹10,000 to the government on behalf of the contractor.
What is TCS?
Under Section 206C of the Income Tax Act, 1961, tax is collected by the seller from the buyer at the time of selling certain specified goods or services. This collected tax is then deposited with the government. Items covered under this provision include liquor, forest produce, minerals, motor vehicles, foreign remittances, and more. The rate of tax collection varies depending on the type of goods or services involved.
Why is it done?
To track large purchases and ensure tax compliance.
Example - You are a car dealer selling a car worth ₹12 lakhs.
You must collect 1% TCS, i.e., ₹12,000 from the buyer, and deposit it with the government.
Difference between TDC and TCS
|
|
TDS
|
TCS
|
|
What is it?
|
Tax deducted at source of income
|
Tax collected during sale of goods or services
|
|
Who levies it?
|
Person or organization making the payment
|
Person selling goods or services
|
|
To whom it applies
|
Salary, contractor, rent, etc
|
Sale of certain goods or services
|
|
When is it applicable?
|
At the time of making the payment
|
At the time of sale
|
|
Levied under section
|
Section 192
|
Section 206C
|
You can view all TDS and TCS entries against your PAN in Form 26AS or AIS on the Income Tax portal and
TDS/TCS can be claimed while filing ITR as prepaid tax.
