What is TDS?
TDS is deducted by the person making a payment before the money is paid to the recipient. The deductor deposits the tax with the government, and the recipient receives credit for the amount deducted.
TDS applies to a wide range of payments, including salaries, professional fees, rent, interest on fixed deposits above prescribed limits, property transactions and certain virtual digital asset transactions.
For salaried employees, employers deduct TDS every month based on estimated annual income. Similarly, banks deduct TDS on fixed deposit interest once it crosses the applicable threshold.
However, Alok Agrawal, Partner, Deloitte India, points out that taxpayers should not assume TDS always covers their entire tax liability.
“Let’s take an example of interest paid by banks on fixed deposits. Generally, the bank would apply a 10% TDS on the interest. That does not mean the individual’s tax liability is fulfilled by that 10%. Our tax liability may be as high as 30%, depending on our income levels,” he said.
If the applicable tax rate is higher than the TDS deducted, the taxpayer may have to pay the balance through advance tax.
What is TCS?
Unlike TDS, Tax Collected at Source is collected by the seller from the buyer at the time of specified transactions. The seller adds the applicable tax to the invoice, collects it and deposits it with the government.
TCS applies to notified transactions, including overseas tour packages, foreign remittances under the Liberalised Remittance Scheme (LRS), and the sale of certain specified goods and motor vehicles above prescribed limits.
According to Agrawal, TCS should not be viewed as an additional tax burden.
“TCS is not a cost to the individual. It represents a credit against your final tax liability,” he explained.
He added that taxpayers can even report eligible TCS credits to their employer so that these may be considered while computing salary TDS, reducing the need to wait until ITR filing to claim a refund.
| Parameter | TDS (Tax Deducted at Source) | TCS (Tax Collected at Source) |
| What is it? | Tax deducted by the payer before making a payment to the recipient. | Tax collected by the seller from the buyer at the time of specified transactions. |
| Who deducts/collects it? | Employer, bank, company or any person making specified payments. | Seller, authorised dealer, travel operator or other notified entity. |
| Who pays it? | The recipient bears the tax deduction. | The buyer or remitter pays the tax along with the transaction amount. |
| Common transactions | Salary, FD interest, rent, professional fees, property purchase, dividends and certain virtual digital asset transactions. | Overseas tour packages, foreign remittances under LRS, sale of specified goods, motor vehicles above the prescribed value and other notified transactions. |
| When is it deducted/collected? | Before the payment is made to the recipient. | At the time of sale or collection of payment from the buyer. |
| Purpose | Collect tax at the source of income and improve tax compliance. | Track specified high-value transactions while collecting tax in advance. |
| Tax credit available? | Yes. Can be claimed while filing the Income Tax Return (ITR). | Yes. Can also be claimed while filing the ITR or adjusted against tax liability. |
| Where can you check it? | Form 26AS and Annual Information Statement (AIS). | Form 26AS and Annual Information Statement (AIS). |
| Does it increase your tax liability? | No. It is adjusted against your final tax liability. | No. It is also an advance tax credit, not an additional tax. |
How can taxpayers claim the credit?
Both TDS and TCS are reflected in Form 26AS and the Annual Information Statement (AIS). Taxpayers should verify these records before filing their income tax returns and claim the corresponding tax credit.
If the total TDS and TCS exceed the final tax liability, the excess amount is refunded by the Income Tax Department after the return is processed. Conversely, if the tax liability is higher than the available credits, the balance tax must be paid before filing the return.
Understanding how TDS and TCS work can help taxpayers avoid confusion, accurately estimate their tax liability and ensure they receive the full credit for taxes already paid during the financial year.
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