TDS vs TCS โ Key Differences and Applicability with Latest Rates
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are two major concepts that has been dealt under the Income Tax Act of India. Both are tools used by the government to collect taxes in advance and reduce the chances of tax evasion. While they might sound similar, they apply in different situations, involve different parties, and have different rules and rates. In this blog, weโll explain what TDS and TCS mean, how they work, where they apply, the key differences between them, and the latest applicable rates for 2025.
What is TDS?
TDS, viz. (Tax Deducted at Source) is a method where a person (called the deductor) deducts tax from the income/payment before making the payment to the recipient (deductee). That deducted amount is then deposited with the government.
Common examples where TDS applies:
- Salary payments.
- Interest payments by banks.
- Rent payments.
- Commission or brokerage.
- Professional fees.
- Contractor payments...!
Objective:
The main objective of TDS is to collect tax from the very source of income. It helps the government receive regular revenue and to ensures that taxpayers do not avoid taxes.
What is TCS?
TCS, viz. (Tax Collected at Source) is a tax that collects from the buyer at the time of sale of various specified goods or while receiving payment for services. The seller is required to deposit this tax to the government.
Common examples where TCS applies:
- Sale of scrap.
- Sale of minerals. (like coal, iron ore)
- Sale of motor vehicle above โน10 lakh.
- Sale of alcoholic liquor.
- Sale of forest produce.
- Foreign remittances and overseas tour packagesโฆ! (under section 206C(1G))
Objective:
TCS ensures that tax is collected from buyers on the sale of goods/services where there are chances of non-reporting of income by buyers.
Key Differences between TDS and TCS
| Feature | TDS (Tax Deducted at Source) | TCS (Tax Collected at Source) |
Who deducts/collects the tax | Payer (like employer, bank, etc.) | Seller of specified goods/services |
When is it deducted/collected | At the time of making payment | At the time of receiving payment/sale |
Applicable on | Payments such as salary, rent, fees, etc. | Sale of certain goods/services |
Party liable to pay to govt | Deductor (person making the payment) | Collector (seller) |
Relevant sections in Income Tax | Section 192 to 196 | Section 206C |
Returns to be filed | TDS returns โ Form 24Q, 26Q, etc. | TCS return โ Form 27EQ |
Certificate issued | TDS certificate โ Form 16, 16A | TCS certificate โ Form 27D |
Applicability of TDS
TDS applies in several transactions as per the Income Tax Act. Here are some common situations and rates applicable for FY 2024โ25:-
| Nature of Payment | Section | Threshold Limit | TDS Rate |
Salary | 192 | As per income tax slab | As per slab |
Interest by banks | 194A | โน40,000 (โน50,000 for senior citizens) | 10% |
Rent โ Land/Building | 194I | โน6 lakh per year | 10% (reduced to 2% from 1st October 2024 if paid by individual/HUF) |
Rent โ Plant/Machinery | 194I | โน2.4 lakh per year | 2% |
Commission/Brokerage | 194H | โน15,000 | 5% (reduced to 2% from 1st October 2024) |
Contractor โ Individual/HUF | 194C | โน30,000 (single) or โน1 lakh (aggregate) | 1% |
Contractor โ Others | 194C | Same as above | 2% |
Professional Fees | 194J | โน30,000 | 10% |
Purchase of goods | 194Q | Turnover > โน10 crore & purchase > โน50 lakh | 0.1% |
Note: PAN is mandatory for lower TDS. In case of no PAN, TDS may be deducted at 20%.
Applicability of TCS
TCS is applicable in fewer transactions compared to TDS. It generally applies to the sale of specific goods and certain remittance-related services.
Nature of Transaction | Section | Threshold Limit | TCS Rate |
Sale of Alcohol, Timber, Forest Produce | 206C (1) | No limit | 1% |
Sale of Scrap | 206C (1) | No limit | 1% |
Sale of Coal, Lignite, Iron Ore | 206C (1) | No limit | 1% |
Sale of Motor Vehicle > โน10 lakh | 206C(1F) | Sale > โน10 lakh | 1% |
Sale of Luxury Goods (like watches, handbags, jewellery, yachts) > โน10 lakh | 206C(1F) | Sale > โน10 lakh | 1% (Effective from 22nd April 2025) |
Foreign Remittance > โน10 lakh | 206C(1G) (a) | โน10 lakh per financial year | 5% (20% if no PAN) |
Overseas Tour Package (any amount) | 206C(1G) (b) | No threshold | 20% (5% if PAN given before 1 Oct 2023) |
Latest Updates and Amendments
As of FY 2024โ25 and FY 2025โ26, here are some major key updates:-
- TCS on Foreign Remittance and Tour Packages: The government has now revised the rates of TCS under section 206C(1G). Now, 20% of TCS is applicable on the foreign remittance and overseas tour packages exceeding โน10 lakh, unless PAN is provided before 1st October 2023.
- TDS on Purchase of Goods under Section 194Q continues to apply if the buyer's turnover is more than โน10 crore in the previous financial year and purchases exceed โน50 lakh from a single seller.
- TDS and TCS both applicable: If a transaction is liable for both TDS under section 194Q and TCS under section 206C(1H), then TDS will apply and TCS will not be collected. (Note: Section 206C(1H) has been removed from FY 2025โ26.)
- Newly Notified Luxury Goods under Section 206C(1F): From 22nd April 2025, TCS at 1% is applicable on sale of luxury items such as watches, jewellery, handbags, motor vehicles, yachts, home theatres etc., above โน10 lakh.
- Forest produce TCS rate reduced from 2.5% to 2% w.e.f. 1st April 2025.
- Rent TDS threshold increased from โน2.4 lakh to โน6 lakh per year w.e.f. FY 2025โ26.
- Senior citizen threshold for the bank/postal deposit interest increased from โน50,000 to โน1 lakh.
- New tax regime exemption limit raised to โน12 lakh.
TDS & TCS Return Filing
TDS Returns
TDS deductors must file quarterly returns:
- Form 24Q โ for salary
- Form 26Q โ for non-salary payments
- Form 27Q โ for payments to non-residents
Due dates:
- Q1 (Apr-Jun): 31st July
- Q2 (Jul-Sep): 31st Oct
- Q3 (Oct-Dec): 31st Jan
- Q4 (Jan-Mar): 31st May
TCS Returns
- File Form 27EQ quarterly.
- Due dates are the same as TDS.
- Penalty for Non-Compliance
- Delay in Deposit: Interest at 1% or 1.5% per month depending on nature.
- Late Filing Fee: โน200 per day under section 234E.
- Penalty: Ranges from โน10,000 to โน1 lakh under section 271H.
(Note: Prosecution for delay under section 276BB and higher TDS/TCS under 206AB/206CCA have been relaxed from FY 2025โ26.)
| Read More:- How to Convert LLP into Private Limited Company? |
Conclusion
TDS and TCS are two essential tools of the Income Tax Department to ensure timely and smooth manner of tax collection. While TDS is deducted at the time of payment by the payer, TCS is collected by the seller during the sale of specified goods or services. Both come with different rules, thresholds, and rates. Understanding their differences is important for businesses, professionals and the taxpayers to ensure proper compliance and to avoid penalties. With the latest updates and evolving tax norms, and regulations staying informed about revised thresholds, new luxury goods rules, and reduced rates under TDS and TCS is essential for smooth financial operations and lawful tax practices. If you are seeking for professional help , feel free to contact CRSPL Business Consultants, they will guide you at every steps and help you stay compliant.
.jpg)
