The total income of an assessed for the previous year is taxable in the assessment year when it comes to income tax. There are provisions in this statute that allow one to recoup tax on income earned in the previous year. TCS and TDS, as well as the payment of advance tax, are all options. You’re not alone if you can’t tell the distinction between TCS and TDS. TCS is a source of income, whereas TDS is a cost.
Also Read: TDS Return Filing
What is the difference between TCS and TDS taxes?
The full term of TDS is ‘tax deducted at source,’ and as the name implies, it is an indirect method of receiving one’s tax, with revenue collected straight from the recipient’s earnings. TDS is based on the principles of ‘pay as you earn’ and ‘collecting when it is earned,’ which means that tax collection is accelerated. According to the Income Tax Act of 1961, any payment on certain expenses that are subject to TDS must be made after a specific percentage has been deducted.
To put it another way, the payer sets aside a portion of the money to be deposited with the government at the time of payment. TDS is used to charge income tax in advance rather than at a later period, and the recipient receives the net amount. Casual income, one’s wage, interest on securities, payment of fees, payment of brokerage or commission, and so on are all examples of where TDS is applied.
Definition of TCS
In India, a tax is collected by the corporation or at regulated rates from the buyer or payer of the designated category of commodities on the sale of particular items. Tax collected at source, or TCS, is the term for this. The seller then pays the government the tax collected from the buyer and produces a TCS certificate, which the buyer of such products would receive credit for. Tendu leaves, scrap, parking lot, jewelry, booze, toll plaza, bullion, and other commodities are among these. For different items, the TCS calculation rate is varied.
TDS vs. TCS: What’s the Difference?
What distinguishes TCS from TDS? Here are all of the key distinctions.
The amount deducted from the recipient’s income in the form of tax is known as tax deducted at source. TCS, on the other hand, refers to the amount of tax that the company or seller has accumulated.
TDS is fundamentally a cost, whereas TCS represents profit.
When one’s specified expenses exceed the prescribed limit, TDS is imported. On the other hand, the TCS calculation is imposed on the sale of specific items.
The buyer or payer is responsible for deducting TDS, whereas the seller or payee is responsible for collecting TCS.
TDS is credited to the payee’s account or during payment, whichever comes first. Although it should be deducted at the time of payment in the case of life insurance premiums and wage payments. TCS is deducted from the buyer’s account or during receipt, whichever comes first. TCS, on the other hand, should be collected when jewelry or bullion is sold and the proceeds are received in cash.
Knowing the difference between TDS and TCS is crucial.
Let’s have a look at how TDS varies from TCS using an example. Assume A works for a specific company, and her employer deducts tax from her paycheck at the appropriate rates every month before making the final payment. TDS, or ‘tax deducted at source,’ refers to the amount deducted from A’s total wage.
B, on the other hand, works in the lumber industry. Some of B’s goods are sold to C. B collects a 5% tax on the sale of his goods when he makes the sale. B collects this amount as tax from his customer C. TCS, or ‘tax collected at source,’ is the name given to this tax.
The ramifications of failing to deposit TCS or TDS
If a person fails to collect or deposit tax, he or she will be subject to a number of legal sanctions. A penalty equivalent to the tax that has not been collected or deducted is included in this. In addition, the individual will be sentenced to three to seven years in prison, as well as a fine.
Interest may be imposed if TCS or TDS are not deposited. The interest on the monthly tax amount that will be eligible for deductions must be paid. Interest is calculated for each month from the day tax is eligible for deductions until it is finally deducted at 1% or paid off at 1.5 percent. The rate of interest levied for TCS calculations remains constant at 1%.
It is critical to meet one’s tax responsibilities in a timely manner. One can lower their personal tax burden by investing in certain financial items such as life insurance. As a result, it’s critical to invest in products that can give not just financial security and prevent future risk, but also a host of tax advantages.