Difference Between TDS and TCS

What Are TDS and TCS? Difference Between TCS & TDS

Individuals and businesses must record all TDS and TCS in GST deductions and collections to meet all requirements fully. 

Written by : Knowledge Center Team

2025-11-24

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7 minutes read

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Income tax is one of the most important aspects of financial planning. You should carefully track your income and taxes. Planning investments, such as life insurance, term plans, or other tax-saving options, can help further reduce your tax burden.

Income tax is not the only source of government revenue. The government also collects indirect and direct taxes such as Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and Goods and Services Tax (GST). They are levied on goods, services, and transactions. Moreover, it is the responsibility of the seller to deposit the tax with the government.  In the case of direct taxes, payments are made by those earning the money.

Today, let’s discuss the two types of taxes that are frequently confused with one another, TDS and TCS. Let us find out what they are and how they are different.

Key Takeaways

  • TDS and TCS are crucial components of India's tax system that ensure taxes are collected at the point of income and sale, respectively.

  • Employers are responsible for deducting TDS from employee salaries, while sellers must collect TCS on specified goods

  • TDS and TCS improve tax collection by enabling upfront tax payments, reducing evasion, and boosting government revenue

  • Failing to deposit TDS or collect TCS can lead to severe penalties, including fines and imprisonment

  • Utilising tax-saving instruments such as life insurance  can help reduce overall tax liability

What is the Meaning of TDS and TCS?

Understanding what TDS and TCS are becomes easier when we look at how taxes are collected in India. Tax Deducted at Source and Tax Collected at Source are both incurred at the source, but both are deducted and collected as per the situation. Instead of waiting until the end of the year, the government receives a steady flow of revenue throughout the financial year. This system also helps individuals and businesses stay compliant without incurring a significant tax burden.

Here’s an overview of TDS and TCS:

  • TDS is tax deducted by a company from payments made to an individual when they cross a set limit. TCS applies not only to e-commerce but also to other specified goods and services listed in the PDF.

  • TDS deduction is applicable to payments such as salaries, rent, professional fees, brokerage, commission, etc. TCS deduction is applicable to sales of goods like timber, scrap, mineral wood, and so on.

  • TDS applies only to payments exceeding a threshold limit. TCS applies to sales of specific goods that don’t include production or manufacturing material.

Definition and Purpose of TDS

TDS (Tax Deducted at Source) is a system where tax is deducted at the time of making specific payments, such as salaries, interest, rent, or professional fees. This deduction is done by the payer (like an employer or business) before making the payment to the payee.

The purpose of TDS is to ensure a steady flow of tax revenue to the government and reduce the risk of tax evasion. Collecting tax at the source of income also simplifies the process for taxpayers, as they don't need to pay their entire tax liability at once during the assessment, but in smaller, regular instalments.

Definition and Purpose of TCS

TCS (Tax Collected at Source) functions similarly to TDS, but instead of deducting tax (TDS), TCS involves the seller of specific goods or services collecting tax from the buyer at the time of sale. This applies to items like alcohol, coal, and certain types of parking services, as outlined under Section 206C of the Income Tax Act.

The purpose of TCS is to streamline tax collection on goods that are frequently sold, ensuring the government gets its share upfront and reducing the likelihood of tax evasion. It also encourages compliance from sellers by making them responsible for remitting collected taxes to the government.

Who Will Deduct TDS and TCS?

One of the differences between TDS and TCS lies in the person/ entity that deducts it. TDS will be deducted by the payer, which could include employers, businesses, or individuals making specific payments like salaries, rent, or contractor fees. In contrast, TCS is collected by the seller of specified goods or services. For example, businesses selling items such as coal, timber, or alcohol are responsible for collecting TCS from buyers.

Both TDS and TCS are aimed at ensuring that taxes are collected early in the transaction process, and the responsibility for deduction or collection rests with the payer or seller, respectively. This helps maintain consistent revenue inflows for the government while easing the tax burden for individuals and businesses.

What is the Difference Between TDS and TCS?

The two most essential taxes the Indian government collects are TDS and TCS.

These taxes must be withheld, collected, and deposited with the appropriate government agencies. Although the difference between TDS and TCS is noteworthy, people frequently combine and use these terms synonymously.

Read the table below to understand the difference between TDS and TCS:

ParametersTDSTCS*
NatureIt is a direct tax and is deducted at the purchase of goods and services.It is an indirect tax on the sale of goods and services
Transactions coveredRent, commission, interest, salaries, brokerage, professional fees, royalty, contract payments, etc.Sale of toll tickets, forest products, cars, tendu leaves, minerals, liquor, timber, scrap, etc.
Time of DeductionWhen payment is made,  or earlier than the creditAt the time of the sale
Due dates7th of every month, though the returns have to be submitted quarterlyDeducted in the month in which the supply is received. Deposited to the Government within 7 days from the month’s end in which it is supplied.
Person responsibleIndividuals or companies making the paymentIndividuals or businesses selling goods or services
Filing quarterly statementsForm 24Q (in case of salaries), Form 26Q (for others except salaries), and Form 27Q (for payments to NRIs)Form 27EQ

*TCS on the sale of goods (206C(1H)) is proposed to be removed from April 1, 2025, on the sale of specific goods and services.

Understanding the Difference Between TDS and TCS with Examples

Before we understand TDS and TCS with examples, it is essential to know the current TDS rates. Here’s the TDS rate chart 2025-26 in detail:

Section

Nature of Payment

Threshold(₹)

IT Rate (%)

IT Rate (%)

IT Rate (%)

192A

Withdrawal of an employee’s accumulated provident fund balance (effective 1 June 2015).

50,000

-

10

30

193

Interest earned on various types of securities.

10,000

10

10

20

194

Dividend income paid to a shareholder.

10,000

10

10

20

194A – Other Cases

Interest payments are not linked to securities in general situations.

10,000

10

10

20

194A – Banks/Co-op Banks/Post Office

Interest paid by banks, co-operative banks, or the post office.

50,000

10

10

20

194A – Senior Citizens

Interest paid to senior citizens is covered under special provisions.

1,00,000

-

10

20

194B

Prize winnings from lotteries, crossword puzzles, and similar games.

10,000

30

30

30

194B – Proviso

Winnings in cash or kind where the prize value does not cover the TDS amount, and tax must be paid before release (effective 1 July 2022).

10,000

30

30

30

194BA

Winnings generated from online gaming platforms (effective 1 April 2023).

-

30

30

30

194BA(2)

Online gaming winnings given partly or fully in kind, requiring tax payment before the winnings are released (effective 1 April 2023).

-

30

30

30

194BB

Amount won from horse racing activities.

10,000

30

30

30

194C

Payments made to contractors or subcontractors for work or services.

1,00,000

2

1

20

194IC

Payments under specified joint-development agreements.

-

10

10

20

194D

Commission earned through insurance-related activities.

20,000

10

2

20

194DA

Payments made under life insurance policies (effective 1 October 2014).

1,00,000

5 (up to 30th Sep 2024)

2 (1st Oct 2024 onwards)

5 (up to 30th Sep 2024)

2 (1st Oct 2024 onwards)

20

194E

Remuneration paid to non-resident sportsmen or sports associations.

-

20

20

20

194EE

Withdrawals from deposits under the National Savings Scheme (NSS).

2,500

10

10

20

194F

Payments made when mutual fund units are repurchased.

-

20 (up to 30th Sep 2024)

20 (up to 30th Sep 2024)

20

194G

Commission given to agents for lottery ticket sales.

20,000

5 (up to 30th Sep 2024)

2 (1st Oct 2024 onwards)

5 (up to 30th Sep 2024)

2 (1st Oct 2024 onwards)

20

194H

Payments made as brokerage or commission.

20,000

5 (up to 30th Sep 202

2 (1st Oct 2024 onwards)

5 (up to 30th Sep 2024)

2 (1st Oct 2024 onwards)

20

194I

Rent paid for land, buildings, furniture, or fittings.

50,000 (Per month)

10

10

20

194I(a)

Rent paid for machinery, plant, or equipment.

50 000 (Per month)

2

2

20

194IA

Transfer of immovable property (other than agricultural land), effective from 1 June 2013.

50,00,000

1

1

20

194J

Charges for professional or technical services.

    

194J(a)

Fees for technical services.

50,000

2

2

20

194J(b)

Fees paid for professional services, royalties, or similar payments.

50,000

10

10

20

Now, let’s understand the example. Let’s say Mr X works at a company. His company deducts a tax on his monthly salary at the applicable rate before making the final payout. The amount that is deducted in this manner is TDS.

Now, Mr Y is a mineral wood trader. He sells some mineral wood to Mr Z. While making the sale, Mr Y collects 5% tax; this sum collected by Mr Y from the customer is called TCS.

As per the latest TCS rules, an operator of an e-commerce market has to collect a tax on the net transaction amount from suppliers who provide them with goods. The rate for this Tax Collected at Source is 1%.

What Happens When You Fail To Collect or Deposit Tax?

There are legal consequences for failing to collect or deposit tax. Failing to deduct or collect tax on time is treated as a serious compliance lapse under Indian tax law. Since TDS and TCS help ensure timely revenue collection, any delay or omission can result in severe consequences for the taxpayer or the collector. These rules are designed to maintain transparency, encourage timely payments, and prevent revenue leakage. 

When the required tax is not collected, not deposited, or deposited late, the law imposes financial and legal repercussions to reinforce accountability. This could include:

  • As per Section 234E, a late fee is applicable if a person fails to file the TDS or TCS return within the prescribed due date.

  • The late fee is charged at ₹200 for each day of delay until the return is filed. However, the total late fee cannot exceed the amount of TDS or TCS deducted or collected.

  • Payment of the applicable late fee is mandatory before filing a delayed TDS or TCS return. TDS or TCS returns cannot be submitted after the due date unless the late filing fee is paid.

  • Imprisonment of three months to seven years, plus a fine.

  • Interest on the monthly tax amount is eligible for deduction. This interest applies for each month from the day when the tax becomes eligible for deduction to the day when it is deducted (at the rate of 1%) or when it is paid to the government (at the rate of 1.5%). In the case of TCS, the interest rate remains 1%.

TDS and TCS Under GST

This applies to e-commerce businesses. Every e-commerce company has to collect some tax on the net transaction value of its sales. This rule came into force in October 2018.

The rate for TCS in this situation would be 1% (0.5% CGST + 0.5% SGST). Alternatively, it could also be 1% of IGST.

Latest Updates on TCS and TDS

Recent updates to TCS and TDS provisions have introduced several significant changes aimed at improving tax collection and compliance:

  • TDS Relief for Salaried Employee: Effective January 1, 2025, salaried employees will benefit from a revised TDS deduction process. Employers will now deduct TDS on total income after considering any TDS or TCS already deducted on non-salary income, thereby reducing the overall TDS burden for employees. 
  • Introduction of Section 194T: Starting April 1, 2025, TDS will be applicable on payments made by firms to their partners under Section 194T. This includes salary, commission, bonus, or interest exceeding ₹20,000 in a financial year at a rate of 10%.
  • TDS on Digital Assets: In a bid to track digital transactions more effectively, the government has introduced TDS provisions on transactions related to virtual digital assets (VDA), such as cryptocurrency. This update ensures that tax is deducted at the source for transactions involving digital currencies, adding a layer of transparency to this rapidly growing sector.
  • Increased TCS Rate on Foreign Remittances: As part of Budget 2023, the TCS rate for foreign remittances under the Liberalised Remittance Scheme (LRS) and for overseas tour packages was proposed to be raised from 5% to 20% on amounts exceeding ₹7 lakh. This change, originally scheduled for July 2023, was later postponed and came into effect during the Budget 2025. Moreover, the limit has been hiked from ₹7 lakh to ₹10 lakh.
  • Exemption for Small Businesses: Taxpayers with an annual turnover of up to ₹2 crore are now exempt from filing specific GST forms, aimed at reducing the compliance burden for small businesses. Source: Grow
  • Lower Reporting Threshold for B2C Supplies: The reporting threshold for Business-to-Consumer (B2C) interstate supplies under GST has been reduced from ₹2.5 lakh to ₹1 lakh. It requires businesses to report smaller transactions for better tax tracking. 

Conclusion

It is crucial to keep track of all your taxes. If TDS has been deducted from your income, you can get refunds if you file returns on time. If you have collected TCS, your priority should be to deposit the collected TCS with the authorities and ensure smooth and lawful trade. You can also save taxes through tax deductions via life insurance, mutual funds, and other tax-saving instruments.

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Glossary

  1. Life Insurance: A contract that provides financial protection to beneficiaries in exchange for regular premium payments
  2. E-commerce Market: A digital marketplace where goods and services are bought and sold online
  3. Royalties: Payments made to the owner of an asset for the ongoing use of their intellectual property or resources
  4. CGST: Central Goods and Services Tax collected by the Central Government on intra-state supplies
  5. SGST: State Goods and Services Tax collected by the State Government on intra-state supplies
glossary-img
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FAQs

As per Section 206C(1H) of the Income Tax Act, 1961, TCS can not be collected if a buyer is liable to pay TDS.

TDS is the tax withheld from payments made to individuals by businesses when the total exceeds a certain threshold. TCS is the tax that vendors must collect from customers when they sell goods.

The payer deducts TDS before transferring funds to the payee, whereas TCS is acquired by the seller from the buyer at the point of sale.

Under GST, TDS applies when the value of a contract exceeds ₹2.5 lakh excluding GST, and the deduction is required only by specified deductors such as government departments, local authorities, or notified entities under Section 51 of the CGST Act..

The tax that an online retailer collects from merchants who sell products or services through its website and who have the e-commerce platform handle payment processing on their behalf is known as TCS under GST.

If TDS or TCS returns are filed late, a fee of ₹200 per day applies under Section 234E, capped at the tax amount. Other consequences include interest charges, additional penalties, and possible imprisonment for non-compliance.

The TDS refund amount takes three to six months to appear in the taxpayer's associated bank account after the ITR is filed. The speed of e-verification determines how long it takes to refund the extra TDS amount.

Section 192 covers TDS on salary. If an employee's pay exceeds the basic exemption limit, all employers must compute income tax on that amount and withhold TDS from salary payments.

TDS applies to certain payments, such as salaries, professional fees, rent, interest, commissions, or contractor payments. The payer deducts tax before releasing the amount to the recipient.

TCS applies to the sale of specific goods or transactions, such as scrap, timber, minerals, motor vehicles with a value above a particular threshold, or other items listed under the Income Tax Act. In these cases, the seller collects tax from the buyer at the time of sale.

Yes, as per the Income Tax Department, any TDS or TCS reflected in your Form 26AS can be claimed as tax credit while filing your Income Tax Return. The amount collected or deducted is adjusted against your final tax liability.

Typical TDS and TCS rates, along with their applicable thresholds, are prescribed under the Income-tax Act, 1961, specifically in the TDS and TCS rate charts notified annually by the CBDT. These charts list rates for payments such as salaries, interest, contract payments, winnings, and specified sales, along with the monetary limits at which deductions or collections are mandatory.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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