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Understanding the difference between TDS and TCS
October, 04th 2019

Understanding the Difference between TDS and TCS
Two of the major tax burdens that an individual bears are – Tax Deducted at Source and Tax Collected at Source. Both these taxes require return filing from the individual.

To better understand each, consider the following major differences between them:

Responsibilities of tax collector and tax deductor?

1. The tax collector will need to obtain the tax collection account number. The tax deductor will need to get the tax deduction account number.

2. The availed tax number must be present in every document dealing with the TDS/TCS (as applicable).

3. The tax collector needs to know and collect the tax at a rate as applicable during that particular period. Tax deductor will need to do the same for deduction.

4. The collected and deducted tax need to be credited to the Central Government by keeping the specified due dates in mind.

5. Furnish periodical TDS/TCS returns and TDS statements on or before due dates specified under the Income Tax Act, 1961.

6. The buyer and the payee are given TCS and TDS certificates respectively before the due dates of filing Income Tax Returns.

There are certain consequences of non-payment of taxes by tax deductor and tax collector.
If one fails to deduct/collect tax at source OR fails to pay post deduction/collection, here’s what happens next.

– Levied Interest
i. Upon non-payment, one has to pay interest @1%* on a calculated tax amount. This is to be paid every month starting from the date tax was deductible till its deduction date.

ii. There’s an interest of 1.5% on the tax amount which is calculated for every month or part of a month from the date tax was deducted to the date when the same is paid to the Central Government.

– Levied Penalty
The amount of penalty is usually the same as the amount of unpaid tax or the tax not deducted.

– Prosecution
In some cases the imprisonment may also apply ranging from 3 months to 7 years along with the fine.

– Disallowance of Expenditure**
In case of TDS not deducted or not paid, then the mandatory expenses (except salary) for tax deduction are also not deducted from the income for computing the tax.

For TCS, interest is calculated at flat @1%.
For TCS, Disallowance of expenditure is not applied.
A quick brief on TDS/TCS tax credit

In TDS, the tax is deducted at the time of payment to payee while in TCS the tax is collected from the buyer. TCS is a tax collection method for specified goods. There are benefits available to the person from whose income the tax is deducted and from those whose purchase expense the tax is collected. This benefit is availed in the form of TDS/TCS Credit.

Understanding the difference with an Example

ABC Pvt. Ltd. is paying ?60,000 monthly rent for its office/commercial space to the property owner. Yearly rent sums up to ?7.2 lakhs (60,000*12). This amount exceeds the TDS non-deduction limit of ?2, 40,000. Therefore, ABC Pvt. Ltd. will deduct TDS @10%, i.e.; ?6000 per month and pays ?44,000 per month to the landlord.

When the owner file income tax return, s/he will show gross income of ?7.2 lakhs while claiming the TDS of ?72,000 (already deducted) as a total tax liability credit which is called TDS credit.

Similarly, Mr. K is a wood trader and Mrs. N buys wood from him for ?60,000. But, Mrs. N will need to pay ?63,000 [60,000 + (5%*60,000)] to Mr. K. So, Mr. K has collected ?3000 TCS @5%.

At the time of filing ITR, Mrs. N can claim ?3000 as total tax liability credit which is called TCS credit.

Calculation of TCS under GST

Every e-Commerce business is required to collect a certain amount of tax on the value of the net transaction. This rule came into play from 1st October 2018 wherein any supplier engaged in supplying goods or services via eCommerce operator who collects the tax concerning supply. Collection of the TCS is possible only if the supply is carried out via an e-commerce operator.

TCS tax rate in such situations is 1% (where; 0.5% CGST + 0.5% SGST) or 1% IGST.

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