Income tax is one of the most important financial planning aspects. You need to keep a check of your incomes, your investments and strategically plan to buy life insurance, a term plan, or any other tax-saving investment to save tax.
Income tax is not the only source of taxes for the government. It also collects indirect taxes such as TDS, TCS, and GST from us, by levying them on goods, services, and transactions. In the case of direct taxes, payments are made by the ones earning the money. In case of indirect taxes, it becomes the responsibility of the seller to deposit the tax with the government.
Two indirect taxes frequently confused with one another are TDS and TCS. Let us find out what they are.
TDS and TCS
Tax Deducted at Source and Tax Collected at Source are both incurred at the source of income.
Tax Deducted at Source and Tax Collected at Source- examples
Let’s say Mr.X works at a company. His company deducts a tax on monthly salary at the applicable rate before they make him 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 percent tax; this sum collected by Mr.Y from the customer is called TCS.
In October 2018, a new rule came into force. As per this rule, an operator of an e-commerce market has to collect a tax on 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. This could include
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 their 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.
It is crucial to keep track of all your taxes. If TDS has been deducted from your income, you can get refunds provided you file returns on time. Imagine the amount of money you would lose with each transaction simply for not filing returns. If you have collected TCS, it should be your priority to deposit the collected TCS with the authorities and ensure smooth and lawful functioning of your trade. As a personal entity, you can also save taxes through other means such as tax deduction via life insurance, mutual funds, and other tax-saving instruments.
One of the attractive life insurance plans in the market right now is the iSelect+ Term Plan by Canara HSBC Oriental Bank of Commerce. It is a tailor-made plan that suits your specific needs and financial goals. It has useful features such as whole life cover, return of premium, multiple payout options, increased coverage options, and tax benefits. If you are married, you wouldn’t even need a separate plan for your spouse. You can add a cover for them under the same plan. Speaking of flexibility, you can even choose from a range of coverage, premium payment, and benefit payout options. All of these features are wrapped in one life insurance package and are just a few clicks away from you!
We will call you shortly.