Income tax is one of the most important aspects of financial planning. To save taxes, you must keep track of your income and investments and prepare ahead of time to get life insurance, a term plan, or any other tax-saving investment. The Income Tax is not the only source of revenue for the government. It also collects indirect taxes from us, such as Tax Deduction at Source (TDS), Tax Collected at Source (TCS), and Goods and Services Tax (GST), through levies on goods, services, and transactions. Direct tax payments are paid by people who earn the money. When it comes to indirect taxes, it is the seller’s responsibility to deposit the tax with the government. TDS and TCS are two indirect taxes that are frequently confused with one another. In this article we’ll discuss TCS on sale or TDS on Purchase Conundrum.
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The Principle of Tax Deduction at Source (TDS)
TDS is an acronym that stands for Tax Deducted at Source. The Income Tax Department mandates any firm or individual to deduct tax at the source if the payment for goods and services above Rs. 50 lakhs, such as rent, consulting, legal fees, royalties, technical services, and so on, according to Section 194 Q. The government sets the TDS rates in line with the Income Tax Act, 1961.
The company or individual deducting TDS from the payment is referred to as the deductor in every TDS transaction, while the company or individual receiving the payment is referred to as the deductee.
The Principle of Tax Collected at Source (TCS)
TCS, or Tax Collected at Source, is a fee levied by the seller on items and collected from the buyer at the point of sale. Furthermore, the commodities and services subject to TCS are listed under Section 206 C of the Income Tax Act, 1961. Furthermore, TCS on the sale of goods has a Rs. 50 lakhs threshold.
Difference of TDS and TCS
TDS and TCS are both imposed at the point of income/payment, although there are some significant distinctions between them. Continue reading to find out the difference between TDS and TCS.
| Elements | TDS | TCS |
| Meaning | A sum withheld from the recipient’s income in the form of tax. It comes at a cost. | Amount collected as tax by the company or seller. |
| Nature | It comes at a cost. | It is a source of revenue. |
| Applicability | It is levied when a payment exceeds a specified threshold. | It is levied on the sale of a certain item or items. |
| Person in charge of Deduction and Collection | The payer is responsible for deducting it. | The vendor or payee collects it. |
| Occurrence | TDS is credited to the payee’s account or deducted at the time of payment, whichever comes first, except for life insurance premiums and salary payments, which are deducted at the time of payment. | TCS is deducted from the buyer or during receipt, however when jewellery or bullion is sold, TCS must be collected when cash payment is received. |
TCS on sale or TDS on Purchase Conundrum
Concerning the application of provisions of sections 194Q and 206C (1H) of the Income Tax Act, 1961 with effect from April 1, 2022.
- Section 206C (1H) of the Income Tax Act, 1961
The section states that anyone who is a seller and has a turnover of more than 10 crores in the previous fiscal year and sells items worth more than 50 lakhs must collect tax at source (TCS) at 0.1 percent from the buyer.
Section’s key takeaways
The following are the major takeaway:
- The Seller’s last fiscal year turnover should have been 10 crores or greater.
- TCS will be charged 0.1 percent of the total consideration value collected from the customer if it exceeds 50 lakhs.
- A customer’s consideration of up to 50 lakhs is excluded from the restrictions of this sub-section.
- The collection is supposed to be done at the time of receipt of sale consideration, although in practise, TCS is levied on invoices above 50 lakhs at the time of sale. TCS shall be collected at the time of advance receipt in the case of advance receipt.
- TCS is to be collected on a value that includes GST.
- Section 194Q of the Income Tax Act, 1961
The preceding clause applies to any buyer who is liable for paying any payment to any resident seller for the acquisition of any products worth more than fifty lakh rupees in any prior year. The buyer is obligated to deduct an amount equivalent to 0.1 percent of the total exceeding fifty lakh rupees as income tax at the time of crediting such sum to the seller’s account or at the time of payment, whichever is sooner.
Important takeaways
The following are the major takeaway:
- The Buyer’s prior fiscal year turnover should have been 10 crores or greater.
- TDS of 0.1 percent is to be deducted on purchases worth more than 50 lakhs.
- This section exempts purchases or credit of up to 50 lakhs from the restrictions of this section.
- TDS is to be deducted on the value minus GST.
Things to do in case of cross application of provisions of 206C (1H) and 194Q of the Income Tax Act, 1961
The requirements of these section shall not apply if the buyer is required to deduct TDS at source under any other provisions of this Act on the goods acquired from the seller and has deducted such tax, according to the second proviso to sub-section (1H) of section 206C of the Act. In other words, if a transaction falls under the ambit of both section 194Q and 206C (1H) of the Act, the tax must be deducted under section 194Q of the Act. After the buyer has deducted the tax on the transaction, the transaction is no longer subject to sub-section (1H) of section 206C.
Endnote
It is vital that you keep good records of all of your taxes. Furthermore, if TDS was taken from your wages, you may be entitled for a refund if your taxes are filed on time. Furthermore, think about how much money you’d lose on each transaction if you didn’t submit returns. If you have collected TCS, it is your job to deposit the TCS with the authorities in order for your business to run smoothly and legally. You can also save taxes as a personal entity by deducting life insurance, mutual funds, and other tax-saving devices.
