TDS (Tax Deducted at Source)
What is TDS?
TDS is a system introduced by the Indian government to collect taxes at the source of income. In simple terms, it is a way of collecting tax before the income reaches the taxpayer. When you receive income from a certain source, the payer deducts a certain percentage of tax at the time of payment and remits it to the government.
Key Points About TDS:
- Who Deducts TDS? TDS is typically deducted by employers, banks, or any entity making payments like rent, salary, or professional fees.
- Rate of TDS: The rate at which TDS is deducted varies depending on the type of income and the applicable provisions of the Income Tax Act.
- TDS Returns: The deducted amount is reported in the quarterly TDS returns and must be deposited with the government.
Example:
- If a salaried individual earns INR 50,000 per month and the applicable TDS rate is 10%, the employer will deduct INR 5,000 as tax and pay the employee INR 45,000.
TCS (Tax Collected at Source)
What is TCS?
TCS is a system where the seller collects tax from the buyer at the time of sale. It is similar to TDS, but instead of deduction, it is a tax collection mechanism from the buyer.
Key Points About TCS:
- Who Collects TCS? TCS is generally collected by sellers who deal in specific goods or services, such as scrap sales, sale of liquor, or foreign travel packages.
- Rate of TCS: The rate varies depending on the type of transaction. For example, for the sale of a car, the TCS rate may be 1%, while for the sale of timber, it could be 2%.
- TCS Returns: Similar to TDS, the seller must file TCS returns to report the tax collected.
Example:
- If a customer buys a car worth INR 10,00,000 and the TCS rate is 1%, the seller collects INR 10,000 as tax and remits it to the government.
Key Differences Between TDS and TCS:
| TDS (Tax Deducted at Source) | TCS (Tax Collected at Source) |
| Tax is deducted from the income of the taxpayer at the source. | Tax is collected by the seller at the time of sale of goods or services. |
| Applies to salaried individuals, interest, rent, etc. | Applies to the sale of specific goods or services like scrap, liquor, etc. |
| The tax deducted is paid to the government by the payer. | The tax collected is paid to the government by the seller. |
| TDS is refunded or adjusted in the income tax return. | TCS is considered an advance tax payment for the buyer. |
TDS Rate Chart for FY 2024-25 (AY 2025-26)
| Section | Nature of Payment | Threshold Limit (Rs.) | TDS Rate (%) |
| 192 | Salaries | – | As per Income Tax Slabs |
| 192A | Premature withdrawal from EPF | 50,000 | 10 |
| 193 | Interest on Securities | 10,000 | 10 |
| 194 | Dividends | 5,000 | 10 |
| 194A | Interest (Banks) | 40,000 | 10 |
| 194A | Interest – Senior Citizens (Banks) | 50,000 | 10 |
| 194A | Interest (Others) | 5,000 | 10 |
| 194B | Winning from Lotteries, Puzzles, etc. | 10,000 | 30 |
| 194BB | Winning from Horse Race | 10,000 | 30 |
| 194C | Contractor – Single Transaction | 30,000 | 1 (Individual/HUF), 2 (Others) |
| 194C | Contractor – Aggregate Payments | 100,000 | 1 (Individual/HUF), 2 (Others) |
| 194D | Insurance Commission (15G/15H allowed) | 15,000 | 5 (Domestic), 10 (Others) |
| 194DA | Payment received under Life Insurance Policy | 100,000 | 1 |
| 194EE | Payment received under National Savings Scheme (NSS) | 2,500 | 10 |
| 194F | Repurchase of Units by Mutual Funds | – | 20 |
| 194G | Commission on Sale of Lottery Tickets | 15,000 | 5 |
| 194H | Commission / Brokerage | 15,000 | 5 |
| 194I(a) | Rent for Plant & Machinery | 240,000 | 2 |
| 194I(b) | Rent of Land, Building & Furniture | 240,000 | 10 |
| 194IA | Transfer of certain immovable property (other than agricultural land) | 5,000,000 | 1 |
| 194IB | Rent payment by Individual/HUF not covered under 194I | 50,000 per month | 5 |
| 194IC | Payment under Joint Development Agreement | – | 10 |
| 194J(a) | Fees for Technical Services, Call Centre, Royalty, etc. | 30,000 | 2 |
| 194J(b) | Fees for Professional Services | 30,000 | 10 |
| 194K | Payment of Dividend by Mutual Funds | 5,000 | 10 |
| 194LA | Compensation on Transfer of certain immovable property | 250,000 | 10 |
| 194LB | Income by way of interest from infrastructure debt fund (Non-Resident) | – | 5 |
| 194LBA | Certain income from units of a business trust | – | 10 |
| 194LBB | Income in respect of investment by investment fund | – | 10 (Residents), 40 (Non-Residents) |
| 194LBC | Income in respect of investment in securitization trust | – | 25 (Individual/HUF), 30 (Others) |
| 194LD | Interest on certain bonds and government securities | – | 5 |
| 194M | Payments for Contracts, Brokerage, Professional Fees, etc. | 500,000 | 5 |
| 194N | Cash Withdrawal exceeding 1 crore (2 crore for co-operative societies) | 10,000,000 | 2 |
| 194O | TDS on e-commerce participants | 500,000 | 1 |
| 194Q | TDS on Purchase of Goods exceeding 50 Lakhs | 5,000,000 | 0.1 |
| 194R | Benefits or Perquisites of Business or Profession | 20,000 | 10 |
| 194S | Payment of consideration for transfer of virtual digital asset | 10,000 | 1 |
TCS Rate Chart for FY 2024-25 (AY 2025-26)
| Section | Nature of Transaction | TCS Rate (%) |
| 206C(1C) | Sale of Tendu Leaves | 5 |
| 206C(1C) | Sale of Timber and Other Forest Produce | 2.5 |
| 206C(1C) | Sale of Alcoholic Liquor for Human Consumption | 1 |
| 206C(1C) | Sale of Scrap | 1 |
| 206C(1C) | Sale of Minerals (Coal, Lignite, Iron Ore) | 1 |
| 206C(1C) | Lease or License of Parking Lot, Toll Plaza, Mine, or Quarry | 2 |
| 206C(1F) | Sale of Motor Vehicle (Value exceeding 10 Lakhs) | 1 |
| 206C(1G) | Foreign Remittance under Liberalized Remittance Scheme (LRS) exceeding 7 Lakhs | 5 |
| 206C(1G) | Sale of Overseas Tour Package (Up to June 30, 2023) | 5 |
| 206C(1G) | Sale of Overseas Tour Package (From July 1, 2023) | 20 |
| 206C(1H) | Sale of Goods (other than those specified under sections 206C(1), 206C(1F), and 206C(1G)) exceeding 50 Lakhs | 0.1 |
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Top Mistakes to Avoid in TDS and TCS Payments
Common mistakes in TDS and TCS payments include:
- Incorrect deduction or collection: Not following the correct rate of deduction or collection as per the type of payment or transaction.
- Late payments: Failing to remit the deducted or collected tax within the due date.
- Incorrect or incomplete returns: Filing returns with incorrect details can lead to penalties and disallowances.
Avoiding these mistakes ensures smooth compliance and helps in maintaining good standing with the tax authorities.
