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TDS and TCS are two of the most significant sources of income for the government. And, it’s crucial for businesses to make such on-time tax payments to avoid penalties and stay compliant.
TDS stands for Tax Deducted (or withheld) at Source. As per Section 194Q, the income tax department mandates any company or individual to deduct tax at the source if the payment exceeds Rs. 50 lakhs for the purchase of goods and services, like rent, consulting, legal fees, royalty, technical services, etc.
The TDS rates are predecided by the government under the Income Tax Act. Click on the button below to find out the TDS rates on different types of goods and services for FY 2021-22.
In any TDS transaction, the company or individual deducting TDS from the payment is called a deductor, and the company or person receiving the said payment is called the deductee.
Tax Collected at Source, or TCS is a tax imposed on goods by the seller, who collects it from the buyer at the time of sale. Section 206C of the Income Tax Act, 1961 specifies the goods and services on which TCS is applicable. The threshold for TCS on the sale of goods is Rs. 50 lakhs.
Although both taxes are levied at the point of origin of income/payment, there are quite a few significant differences between TDS and TCS. Read on to get a clear understanding of the difference between TDS and TCS.
The deductor/collector can be penalized if they fail to pay TDS on time and file their TDS/TCS return correctly under Section 271H. The deductor/collector can be fined a minimum of Rs. 10,000 and a maximum of Rs. 1,00,000 for filing an incorrect TDS/TCS return. Also, Section 201(1A) of the Income Tax Act mandates an interest of @1.5% per month applicable for non-deduction of TDS from the date on which tax was deductible to the date on which tax is deducted.
In case of late TDS payments, the same interest of 1.5% will apply from the date of deduction to the payment date.