TDS vs TCS are Two of the most important revenue streams for the government. In addition, timely tax payments are essential for companies to make to avoid fines and maintain compliance.
As we examine the distinctions between TDS and TCS and their significance on enterprises, please read.
TDS: What is it?
Tax Deducted at Source, or TDS is the abbreviation. When paying for products and services like rent, consultancy, legal fees, royalties, technical services, etc. that cost more than Rs. 50 lakhs, a corporation or individual is required by Section 194Q of the Income Tax Act to deduct tax at the source.
According to the Income Tax Act, the TDS rates are specified by the government. For information on the TDS rates for various goods and services for the fiscal year 2021–2022, click the button below.
The deductor and deductee are the parties involved in a TDS transaction. TDS is withheld from the payment by the deductor, who is also known as the deductor.
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TCS: What is it?
A tax known as Tax Collected at Source, or TCS, is levied on goods by the seller, who then collects payment from the customer at the point of sale. The goods and services to which TCS is applicable are defined in Section 206C of the Income Tax Act of 1961. The minimum sales threshold for TCS is Rs. 50 lakhs.
There are many notable differences between TDS and TCS, even though both taxes are imposed at the point of origin of income or payment. To fully comprehend the distinction between TDS and TCS, continue reading.
What is the difference between TDS AND TCS: example
Example of the distinction between TDS and TCS: Let’s say that the DFE Group Pvt. Ltd. pays Rs. 40,000 in rent each month for its office space. Their monthly rent is Rs. 480,000. The maximum amount that cannot be deducted from TDS is Rs. 2,40,000. DFE Group Pvt Ltd. will therefore deduct TDS @ 10%, or Rs. 4000 per month, and pay Rs. 36,000 per month in rent.
The office space owner will declare 4.8 lakh rupees in gross income on their income tax return and claim 48,000 rupees in TDS (previously deducted) as a total tax liability credit, or TDS credit.
Let’s now look at a different scenario where Mr. Gopalan, a wood dealer, sells wood to Ms. Sapna for 50,000. However, Ms. Sapna will give Mr. Gopalan $52,500 [50,000 + (5%*50,000)]. Mr. Gopalan is in charge of collecting the additional Rs.
Ms. Sapna is eligible to claim the TCS credit, also known as the TCS credit when she files her ITR. This credit is worth Rs.
We hope that has clarified the distinction between TDS and TCS. Get our weekly newsletter to keep informed about all the most recent tax developments and how they may affect your company.
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Covered Transactions
TDS applies to a variety of expenses, including rent, interest, salary, brokerage, professional fees, and commission.
TCS applies to the sale of wood, scrap metal, minerals, alcoholic beverages, tendu leaves, forested goods, automobiles, and toll tickets.
Date and Time of Collection
Whenever a payment is made, regardless of when it becomes due, TDS is deducted.
TCS is gathered by the seller at the time of sale.
Rates
For purchases of products, the tax deduction rate (TDS) is 0.1% of the amount over Rs. 50 lakhs.
For the sale of products, the tax collection rate (TCS) is 0.1% of the selling amount over Rs. 50 lakhs.
Penalties for Failure to Comply
Under Section 271H, the deductor/collector may be fined for failing to submit their TDS/TCS returns on time and accurately. If a TDS/TCS return is filed incorrectly, the deductor or collector may be penalized a minimum of Rs. 10,000 and a maximum of Rs. 100,000. Additionally, Section 201(1A) of the Income Tax Act stipulates that from the day that tax was deductible to the date on which tax is deducted, interest at the rate of 1.5% per month is imposed for non-deduction of TDS.
The same 1.5% interest rate will be charged for any overdue TDS payments from the date of deduction to the date of payment.
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