What Is TDS In Income Tax? Here’s How It Is Different From TCS

We all question what is Tax Deducted at Source (TDS and why is it imposed. What happens to the amount deducted in TDS and on what income is TDS levied? If you have many such questions in your mind, then know the ABCD of TDS here so that there is no confusion. If a person has any income, then tax is deducted from that income and the remaining amount is given. The amount deducted as tax in this way is called TDS. The government collects taxes through TDS. It is deducted from different types of income sources. These include salary, interest received on investment and commission, etc. The paying institution deducts a fixed amount as TDS. The government announces before every financial year how much TDS will be deducted on which type of payment. Since tax is deducted at the source of income, it is called Tax Deducted at the Source i.e. TDS. In this way, the person who deducts tax is called Deductor and the person whose TDS is deducted is called Deductee.

Example of TDS

Let us understand TDS through an example. Suppose you have won a lottery of Rs 10 lakh. There is a rule to deduct 30% TDS on the entire amount won in the lottery. You will get the remaining amount after deducting 30% of Rs 10 lakh. That means, from your lottery of Rs 10 lakh, Rs 3 lakh will be deducted as TDS. In this way, if you win a lottery of ten lakh rupees, you will get seven lakh rupees. If you receive professional fees from somewhere, then 10 per cent TDS is deducted on payments of Rs 30,000 or more annually.

Deposited with the government

TDS deducted from all income sources is deposited with the government. In return, you also get a certificate in which it is told how much TDS was deducted from a particular person and how much amount went into the government account. If TDS is more than income tax, a refund is claimed and if it is less, advance tax or self-assessment tax has to be deposited.

The government does not deduct TDS directly

The government does not deduct TDS directly. The responsibility of depositing TDS in the government account rests with the person making the payment or the organization making the payment. Different TDS rates are fixed on different types of services, for example, TDS is deducted from salary as per the tax slab, whereas there are different rules for collecting rent on buildings or any other similar. Apart from this, TDS is also deducted on goods purchased other than basic needs, on which payment is made more than the prescribed limit.

How is TDS deducted?

Any institution making payment deducts a certain amount as TDS. In such a situation, the deductee must also take the certificate of TDS deduction. Through this certificate, the deductee can claim TDS of the tax paid. However, he will have to claim in the financial year.

What is TCS?

 TCS tax is collected at the source. That is, tax collected at source. This tax is levied on transactions of certain types of goods. Like liquor, tendu leaves, timber, scrap, minerals, etc. While taking the price of goods, tax amount is also added to it and deposited with the government. The responsibility of collecting TCS from the buyer and depositing it with the government rests with the person who sells the goods. That means this responsibility lies with the seller. Because tax is collected from the source of receipt of price, it is called Tax Collected at the Source i.e. TCS. According to Section 206C (1) of the Income Tax Act, there is a rule to deduct TCS only on the sale of certain items for business purposes. This does not seem to be the case if the deal is for personal consumption.

Example of TCS

Let us try to understand TCS through an example. Suppose a person sold scrap worth Rs 1 lakh to a company. There is a rule to charge TCS of one per cent on scrap. One per cent of Rs 1 lakh is Rs 1000. In this way, a total of Rs 1 lakh 1 thousand will be taken from the company. TCS of Rs 1000 collected in this way will have to be deposited with the Income Tax Department. Its rates are different on different things.