Difference Between TDS and TCS

Last Updated: 3 Sep 2025

The government collects taxes in the form of income tax, direct taxes and indirect taxes. Direct taxes are paid to the government directly by individuals earning money. On the other hand, indirect taxes are the seller’s responsibility to deposit with the government.

Tax Deducted at Source (TDS), and Tax Collected at Source (TCS) are two examples of indirect taxes levied by the government. People might use these terms interchangeably. However, here’s the difference between TDS and TCS breakdown.

What is TDS?

Tax Deducted at Source or TDS is an indirect type of tax, where revenue collection is done directly at the point of the recipient’s income. TDS uses the notion of ‘pay as you earn’ and ‘collect when it is earned’.

According to the Income Tax Act, any payment under the ambit of TDS is to be paid after the deduction of a specific percentage. In a TDS transaction, the company or the individual deducting TDS is called the deductor, while the person receiving the payment is called the deductee. With the TDS system in place, the tax on income gets charged in advance rather than in the future, with the recipient receiving tax deducted income directly.

Services Commonly Subject to Tax Deducted at Source (TDS)

• Professional or technical fees paid to consultants, lawyers, engineers, doctors, chartered accountants, architects, IT specialists, sports commentators, etc.
• Payments to resident contractors or sub-contractors for repair, maintenance, advertising, catering, courier or any works contract when the single payment exceeds ₹30,000 or the yearly aggregate crosses ₹1,00,000.
• Royalty for use of intellectual property such as patents, copyrights and trademarks.
• Director’s remuneration other than salary.
• Rent of land, building, plant or machinery above the statutory threshold.
• Interest paid by banks and financial institutions on fixed deposits beyond the exemption limit.

What is TCS?

Tax Collected at Source, or TCS is the tax imposed on goods by the sellers that are collected from the buyers at the time of sale. This tax collected is then transferred from the seller to the government.

The items on which TCS can be levied are listed in Section 206C of the Income Tax Act, 1961. Some of these items include timber wood, liquor, minerals like lignite and coal, parking lots, toll plazas, etc.

Goods & Transactions Where Tax Collected at Source (TCS) Applies

• Scrap generated from manufacturing or demolition activities.
• Minerals such as coal, lignite and iron ore.
• Timber or other forest produce.
• Sale of a motor vehicle where the invoice value exceeds ₹10 lakh.
• Grant of licence/lease for toll plazas, parking lots, mining or quarrying.
• Overseas tour packages and foreign remittances exceeding the thresholds set in section 206C(1G).
• General sale of any goods when the seller’s turnover exceeds ₹10 crore and the buyer’s yearly purchases from that seller cross ₹50 lakh (TCS at 0.1%).

Example of TDS and TCS

Suppose, you are an employee at a company where your salary is Rs. 20,000. At the time of payment of your salary, the company will deduct a prescribed percentage from your salary in the form of TDS. Let’s say the TDS applicable is 5%. You will, hence, receive Rs. 19,000, and your tax deducted at the source will be Rs. 1000.

Now, suppose you want to purchase timber from a timber trader for Rs. 50,000. But you will pay him a total amount of Rs. 52,000 (50,000 + 5% of 50,000). The surplus Rs. 2,500 is the TCS you will pay to the timber trader. While filing your ITR, you can claim a credit of Rs. 2,500 for the total tax liability. This is known as TCS credit.

Difference Between TDS and TCS

Parameter	Tax Deducted at Source (TDS)	Tax Collected at Source (TCS)
Meaning	Tax deducted by the payer when making specified payments (e.g., fees, rent, salaries)	Tax collected by the seller from the buyer on the sale of specified goods or on certain high-value transactions
Trigger point	Payment is made/credited, whichever is earlier	At the time of sale or receipt of consideration
Responsible party	Payer/deductor (employer, bank, service recipient)	Seller/collector (trader, manufacturer, e-commerce operator)
Major coverage	Services and income streams: salaries, interest, rent, professional or technical services, contractor payments	Particular goods & transactions: timber, scrap, minerals, motor cars >₹10 lakh, overseas remittance, etc.
Typical rates & sections	Vary from 1% to 30% depending on the section	Mostly 0.1%–5% depending on goods/section
Credit for tax	Counts as advance tax for the payee; reflected in Form 26AS	Counts as advance tax for the buyer; shown in Form 26AS
Return form & due date	Quarterly Form 24Q/26Q; remittance by 7th of next month	Quarterly Form 27EQ; remittance within 7 days from the month-end
Objective	Secure government revenue at the point income arises	Secure revenue at the point goods are traded

These distinctions capture the practical difference between TDS and TCS with examples in India’s tax system.

Failure to Deposit TDS or TCS with the Government

The deductor or the collector of the taxes will have to face legal consequences if they fail to pay TDS or TCS on time or to file their TDS or TCS under Section 271H correctly. They can also be fined a minimum of Rs. 10,000 and a maximum of Rs. 1,00,000 for failure to deposit the taxes.

Moreover, Section 201(1A) of the Income Tax Act makes it mandatory to pay an interest of 1.5% per month in case of non-deduction of TDS or late TDS payments from the date on which tax was deductible. For TCS calculation, the rate of interest levied remains stable at 1%. Additionally, the individual may also be imprisoned for three to seven years.

An individual or a company needs to fulfil their tax obligations on time. If TDS has been deducted from your salary, you can get it refunded, provided you file your returns on time. On the other hand, if you have collected TCS, you should make sure that the collected TCS is deposited with the correct authorities.

As an individual, you can also save taxes through life insurance, mutual funds and other tax-saving instruments.

Frequently Asked Questions

What happens when you fail to collect or deposit tax?

If an individual fails to collect or deposit tax, he can face various legal consequences, including a fine of up to Rs. 1,00,000 and 3-7 years imprisonment.

Is TCS refundable?

TCS can be refunded to the buyer of the goods at the time of payment of taxes computed as per the income tax act of the buyer. The Credit claimed by the buyer is also required to be disclosed in the income tax return.

Are TDS and TCS applicable on the same transaction?

No, TCS is not applicable if the buyer is liable not be applicable if the buyer is liable to deduct TDS on the same transaction.