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TDS and TCS under Income Tax Act or GST

Income tax is not the only source of taxes for the government. It also collects indirect taxes such as TDS, TCS, and GST from us, by levying them on goods, services, and transactions. In the case of direct taxes, payments are made by the ones earning the money. In case of indirect taxes, it becomes the responsibility of the seller to deposit the tax with the government.

Two indirect taxes frequently confused with one another are TDS and TCS. Let us find out what they are.

TDS and TCS - The difference

Tax Deducted at Source and Tax Collected at Source are both incurred at the source of income.

·TDS is the tax which is deducted on a payment made by a company to an individual, in case the amount exceeds a certain limit. TCS is the tax which is collected by sellers while selling something to buyers.

·TDS deduction is applicable on payments such as salaries, rent, professional fee, brokerage, commission, etc. TCS deduction is applicable on sales of goods like timber, scrap, mineral wood, and so on.

·TDS is applicable only on payments that exceed a certain amount. TCS is applicable on sales of specific goods which don’t include production or manufacturing material.

Rates:

TDS and TCS under GST

This applies to e-commerce businesses. Every e-commerce company has to collect some tax on the net transaction value of their sales. This rule came into force in October 2018.

The rate for TCS in this situation would be 1% (0.5% CGST + 0.5% SGST). Alternatively, it could also be 1% of IGST.

Failure to collect or deposit TDS

There are legal consequences for failing to collect or deposit tax. This could include

·A penalty amount equal to the tax which is not deducted or collected

·Imprisonment of three to seven years plus fine

·An interest on the monthly tax amount eligible for deduction. This interest applies for each month from the day when the tax becomes eligible for deduction to the day when it is deducted (at the rate of 1 percent) or when it is paid to the government (at the rate of 1.5%). In case of the TCS, the interest rate remains 1% per month.

TDS and TCS under GST

This applies to e-commerce businesses. Every e-commerce company has to collect some tax on the net transaction value of their sales. This rule came into force in October 2018.

The rate for TCS in this situation would be 1% (0.5% CGST + 0.5% SGST). Alternatively, it could also be 1% of IGST.

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