TDS and TCS are the most essential taxes levied by the Indian Government.

Such taxes must be deducted/collected and deposited with the respective authorities of the
government.
However, individuals often mix up these terms and use them interchangeably.

If you want a thorough understanding of the difference between TDS and TCS and their
implications, check out the details below.

What are TDS and TCS with Examples?

TDS stands for Tax Deducted at Source. It is the tax amount that the government collects
directly from the recipient’s income immediately when it is earned. The TDS is deducted at a
certain percentage. As per the IT Act, an individual or any company can deduct this tax at the
source of income if the payment for any goods or services crosses a certain amount.

The Government decides the TDS rates and thresholds for different types of goods and
services for a particular financial year.

The services include the following:

● Royalty
● Technical services
● Legal fees
● Consulting
● Rent, etc.

In a transaction where TDS is applicable, the person or firm receiving the payment is called
the deductee. On the other hand, the individual or business deducting TDS from the payment
is called a deductor.

Take a look at the TDS rates for some payment types:

Type of payment TDS rate

Salaries As per the tax slab
10% for land, building and furniture and
Rental charges greater than Rs.2,40,000 for
2% for plant and machinery and equipment
buildings, land, plant and machinery

Prize money for a lottery, horse race, 30%

crossword puzzle, etc., more than Rs.10,000

Brokerage or commission from lottery ticket 5%

sales amounting to more than Rs.15,000

Purchase of immovable property of more 1%

than Rs.50,00,000

Single payment of Rs.30,000 or aggregate

payment of Rs.1,00,000 to a contractor 1% for individuals or HUF, 2% for Others
Let’s take an example for better understanding. Suppose ABC Ltd. pays a rent of Rs.40,000
per month for a warehouse. The yearly rent of this company amounts to Rs.4,80,000, which is
above the threshold of Rs.2,40,000.

Thus, ABC Ltd. will deduct the TDS at the rate of 10%, amounting to Rs.4,000 and then pay
Rs.36,000 as monthly rental charges.

Now, the warehouse’s owner will list Rs.4,80,000 gross income in his income tax return and
claim a TDS of Rs.48,000, which has already been deducted, as a total tax liability credit,
also known as a TDS credit.

Alternatively, TCS stands for Tax Collected at Source. According to Section 206C of the
Income Tax Act, seller imposes TCS on their goods and collect them from buyers at the time
of sale.

Here are the TCS rates for some commonly bought goods:

TCS
Good purchased
rates
Tendu leaves 5%
Alcohol 1%
Timber wood from a forest on lease 2.5%
Motor vehicles worth more than Rs.10 lakh 1%
Toll plaza, quarry, mine and parking lot 2%
Metals (including iron ore, lignite and coal) 1%
Forest produce (excluding tendu leaves and
2.5%
timber)

Suppose Mr Mishra purchases tendu leaves worth Rs.60,000 from Mr Desai. However, Mr
Mishra will pay the following amount:

Rs.{60,000 + (5% of 60,000)} = Rs.63,000

Mr Desai will collect the extra Rs.3,000, also known as TCS credit.

What is the Difference between TDS and TCS?

You can understand the difference between TDS and TCS through the following
illustration:

Parameters TDS TCS

Purchase of goods and services
Limits Sale of goods and services
Selling of toll tickets, forest
Transactions Rent, commission, interest, rent, products, cars, tendu leaves,
covered salaries, brokerage and more minerals, liquor, timber, scrap,
etc.
Time of When payment is due or made,
At the time of sale
Deduction whichever comes sooner
Due dates 7th of next month, except for March it is 7th of next month, except for
 March it is the 7th of April of
the 30th of April of the next Financial the next Financial Year. The
Year. returns have to be submitted
quarterly.
Person Individual or company making the Individual or business selling
responsible payment the goods or service
Form 24Q (in case of salaries), Form
Filing
26Q (for others except salaries), and Form 27EQ.The returns have to
quarterly
Form 27Q (for payments to NRIs).The be submitted quarterly.
statements
returns have to be submitted quarterly.

Is TCS Applicable if TDS is Deducted?

During a transaction, if a buyer deducts TDS based on the provisions in the Income Tax Act,
then, in this case, TCS is not applicable.

What is TDS and TCS Amount?

TDS amount is the tax deducted by an individual or company while making a payment. In
comparison, TCS amount is the tax collected by the seller during the time of sale.

Who will Deduct TDS and TCS?

In the event of a transaction, the individual making the payment will deduct TDS. In contrast,
the seller deducts the TCS during the sale of goods or services.

What is the Difference Between TDS and TCS in GST?

TDS under GST is tax-deductible by a specified buyer of goods and services while making
payments under a business contract if the contract value exceeds Rs.2,50,000.

Whereas TCS under GST is the tax that an e-commerce business collects when merchants sell
goods or services via its website, and the e-commerce platform takes payments on their
behalf.

As a tax-paying individual or business, you must file TDS returns on time in order to get the
refunds. Conversely, if you collect TCS, you have to deposit it with the respective authorities
within the stipulated time.

Budget 2025 has hiked the threshold for the number of transactions eligible for tax
deducted at source (TDS) across a spectrum of income streams. The higher threshold
limit will benefit small taxpayers and gig workers receiving payments. Apart from
rationalising the TDS threshold limits, the Budget 2025 has proposed to raise the
threshold to collect tax at source (TCS) on remittances under RBI's Liberalised
Remittance Scheme (LRS) to Rs 10 lakh from Rs 7 lakh currently. The finance
minister also proposed to remove TCS on remittances for education purposes, where
such remittance is out of a loan taken from a specified financial institution. Currently,
in such cases, a TCS of 0.5% is attracted.

A higher threshold definitely helps small taxpayers and props up their immediate cash
flow. Remember tax deducted/collected as TDS and TCS are set off against the final tax
liability of an individual. Here is an example to understand this: the threshold on TDS
on dividend income has increased from Rs 5,000 to Rs 10,000. This will help a small
taxpayer who has insignificant dividend income to avoid the hassle of adjusting the TDS
against his tax liability and claiming a refund.

Similarly, gig workers who work for different companies and entities face a TDS
liability on payments made to them by each entity in excess of Rs 30,000 in a year.
Section 194-J has increased the threshold limit to Rs 50,000.

However, it should be noted that the TDS rates have not changed. For example, TDS on
dividends continues to be at 10%, and gig workers (professional services) also continues to
be at 10% TDS rate.

Certain finer aspects also need to be kept in mind. If the tenant is an individual, they don't
have to deduct tax at source on rent. Thus, only if they have leased their flat to a corporate
entity (many companies lease flats for their employees) will they benefit from the increase in
the threshold limits of TDS against rent payment.
 An individual can remit up to USD 2.5 lakh annually without seeking
prior approval from the Reserve Bank of India. This automatic route
is under LRS, which enables them to send money to a child studying
overseas (for education), invest overseas, or even indulge in a
much-needed overseas vacation. However, outward remittances
are subject to TCS.

Tax collection at source (TCS) requirements lead to an additional

cash outflow at the time of remittance and pinch an individual's
pocket. Thus, the increase in threshold limit for TCS on outward
remittances brings some respite.

Advance Payment of Tax

Advance Payment of Tax refers to the liability to pay Income Tax for income earned during
the same Financial Year. In general, taxpayers are required to pay tax only for the income of
the preceding year. However, if the tax payable is in excess of ten thousand rupees, the tax
should be remitted to the government before the due date mentioned in the Act. The
purpose of incorporating Advance Tax provisions in the Act is to ensure that revenue
reaches the Government without delay. According to Section 208 of Income Tax Act 1961,
every person whose estimated tax liability for the financial year exceeds Rs.10,000 has to
pay tax in advance.

Calculation of Advance Tax Liability

Every assessee shall be liable to pay advance income-tax during any financial year in respect
of the taxpayer's total income of the financial year if the amount of advance income-tax
payable exceeds ten thousand rupees.

The amount of advance income-tax payable by an assessee in the financial year should be
computed in the specified manner. The assessee should first estimate the total income and
calculate income-tax which is payable on the total income. The tax liability should be
calculated using the rates in force in the financial year. The tax payable should include
secondary and higher education cess. It should also include surcharge. The assessee should
note that surcharge is calculated at a percentage of income tax, while cess is calculated as a
percentage of the sum of income tax and surcharge.

The income-tax calculated as per the above step shall be reduced by the amount of income-
tax which would be deductible or collectible at source during the financial year from any
income which is taken into account in estimating the total income. Further, a deduction
should also be made in relation to the amount of credit availed under Section 207, allowed
to be set-off in the financial year.
The balance amount of income-tax shall be the advance income-tax payable.

The advance income-tax, in case of any person other than a company, shall be payable in
three installments during the financial year, on or before the specified dates.

Who should pay advance tax?

Salaried persons are not required to pay advance tax, as the employer usually deducts tax at
source (TDS). However, if an employee has any other income other than salary income for
which tax has not been deducted at source and the tax liability exceeds more than
Rs.10000, then advance tax must be paid. On the other hand, professionals (self-employed),
businessmen and corporates will have to pay taxes in advance as they typically have taxable
income that exceeds the advance tax payment threshold.

When to pay advance tax?

The advance tax is to be paid in the following three installments on the following dates: For

Non-Corporate Assessee:

On or before 15 September – not less than 30% of the tax payable for the year.

On or before 15 December – not less than 60% of the tax payable for the year.
On or before 15 March – not less than 100% of the tax payable for the year.

For Corporate Assessee: On or before 15 June – not less than 15% of the tax payable for the
year. On or before 15 September – not less than 45% of the tax payable for the year. On or
before 15 December – not less than 75% of the tax payable for the year. On or before 15
March – not less than 100% of the tax payable for the year.

How to pay advance tax?

You can pay advance tax using the tax payment challan at the bank branches impaneled
with the Income Tax department. Advance tax can be deposited with State Bank of India,
ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, and other authorised banks.
There are over 926 branches in India that can accept advance tax payments. At present,
advance tax can also be paid through the NDSL website.

Exemption for Senior Citizens

According to Section 207 of the Act, a resident senior citizen (an individual aged 60 years or
more) who does not have any income from business or profession is not liable to pay
advance tax. For instance, a senior citizen may have various sources of income such as
rental income, pension, interest from bank deposits, or dividends. Senior citizens do not
have to pay advance tax, as these sources of income do not fall under the income tax head
of income from business or profession. Also, this exemption is provided irrespective of the
amount of income that a senior citizen earns from a source other than business or
profession.