Income Tax: The Indian Income Tax system is intricate as it covers important aspects of the economy. There are various concepts in Income Tax and one concept that is often confusing for taxpayers is the difference between Tax Deducted at Source or TDS and Tax Collected at Source or TCS.

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Let us understand both concepts in detail. 

Income Tax: What is Tax Deducted at Source or TDS? 

TDS is the amount deducted from payments made for specified services. The source can be professional fees, contract payments, commission and royalty payments and so on. TDS can also be applied to certain types of investment including interest earned from fixed deposits and other deposits in banks, post offices, and so on.

The concept of TDS was introduced with the aim to collect tax from the source of income.

Income Tax: How does TDS work? 

According to the concept of TDS, a person or an institute (deductor) who is liable to make payment for service shall deduct tax at source and remit the same into the account of the Central Government.

This TDS amount can be claimed back on the basis of Form 26AS for the TDS certificate issued by the deductor.

Income Tax: TDS tax slab  

 

Section Nature of transaction Threshold Limit (Rs) TDS Rate
192 Payment of salary Basic exemption limit of employee Normal Slab Rates
192A Premature withdrawal from EPF 50,000 10%
193 Interest on securities Debentures- 5,000

8% Savings (Taxable) Bonds 2003 or 7.75% Savings (Taxable) Bonds 2018- 10,000

Other securities- No limit

 10%
194 Payment of any dividend 5,000 10%
194A Interest from other than interest from securities (from deposits with banks/post office/co-operative society) Senior Citizens- 50,000

Others- 40,000

 10%
194A Interest from other than interest on securities u/s 193 and interest from banks/post office/co-operative society.

For e.g., interest from friends and relatives

 5,000 10%
194B Income from lottery winnings, card games, crossword puzzles, and other games of any type 10,000 30%
194BB Income from horse race winnings 10,000 30%
194C Payment to contractor/sub-contractor:-

Individuals/HUF

 Single transaction- 30,000

Aggregate transactions- 1,00,000

 1%
194C Payment to contractor/sub-contractor:-

Other than Individuals/HUF

 Single transaction- 30,000

Aggregate transactions- 1,00,000

 2%
194D Insurance commission to domestic companies 15,000 10%
194D Insurance commission to other than companies 15,000 5%
194DA Income for the insurance pay-out, while payment of any sum in respect of a life insurance policy. 1,00,000 5%
194E Payment to non-resident sportsmen/sports association No limit 20%
194EE Payment of amount standing to the credit of a person under National Savings Scheme (NSS) 2,500 10%
194F Payment for the repurchase of the unit by Unit Trust of India (UTI) or a Mutual Fund No limit 20%
194G Payments, commission, etc., on the sale of lottery tickets 15,000 5%
194H Commission or brokerage 15,000 5%
194-I Rent on
plant and machinery		 2,40,000 2%
194-I Rent on
land/building/furniture/fitting		 2,40,000 10%
194-IA Payment in consideration of transfer of certain immovable property other than agricultural land. 50,00,000 1%
194-IB Rent payment by an individual or HUF not covered u/s. 194-I 50,000 per month 5%
194-IC Payment under Joint Development Agreements (JDA) to Individual/HUF No limit 10
194J Any sum paid by way of fee for professional services 30,000 10%
194J Any sum paid by way of remuneration/fee/commission to a director 30,000 10%
194J Any sum paid for not carrying out any activity concerning any business; 30,000 10%
194J Any sum paid for not sharing any know-how, patent, copyright, etc. 30,000 10%
194J Any sum paid as a fee for technical services 30,000 2%
194J Any sum paid by way of royalty towards the sale or distribution, or exhibition of cinematographic films 30,000 2%
194J Any sum paid as fees for technical services, but the payee is engaged in the business of operation of the call center. 30,000 2%
194K Payment of any income for units of a mutual fund, for example, dividend No limit 10%
194LA Payment in respect of compensation on acquiring certain immovable property 2,50,000 10%
194LB Payment of interest on infrastructure debt fund to Non-Resident No limit 5%
194LC Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against loan agreement or the issue of long-term bonds No limit 5%
194LC Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against the issue of long-term bonds listed in IFSC No limit 4%
194LD Payment of interest on bond (rupee-denominated) to FII or a QFI No limit 5%
194LBA(1) Certain income distributed by a business trust to its unitholder No limit 10%
194LBA(2) Interest income of a business trust from SPV distribution to its unitholders No limit 5%
194LBA(2) Dividend income of a business trust from SPV, in which it holds the entire share capital exempt the capital held by the government, and distribution to its unitholders No limit 10%
194LBA(3) Rental income payment of assets owned by the business trust to the unitholders of such business trust No limit 30%
194LBA(3) Rental income payment of assets owned by the business trust to the unitholders of such business trust No limit 40%
194LBB Certain income paid to a unitholder in respect of units of an investment fund No limit 10%
194LBB Certain income paid to a unitholder in respect of units of an investment fund No limit 40%
194LBC Income from investment in securitisation fund received to an individual and HUF No limit 25%
194LBC Income from investment in securitisation fund received to a domestic company No limit 10%
194LBC Income from investment in securitisation fund received to a foreign company No limit 40%
194LBC Income from investment in securitisation fund received to NRI No limit 10%
194M Certain payments by Individual/HUF not liable to deduct TDS under Section 194C, 194H, and 194J 50,00,000 5%
194N Cash withdrawal exceeding a certain amount 1 crore 2%
194N Cash withdrawal in case person not filing ITR for last three years and the original ITR filing due date expired -20 lakh to 1 crore

-1 crore

 2%

5%
194O Payment for the sale of goods or provision of services by the e-commerce operator through its digital or electronic facility or platform. 5,00,000 1%
194P Payment of pension or interest to specified senior citizens of age 75 years or more Basic exemption limit of senior citizens or super senior citizens Normal tax slab rates
194Q Payments for the purchase of goods 50,00,000 0.10%
194R Perquisite or benefit to a business or profession 20,000 10%
194S TDS on the transfer of virtual digital assets Specified Persons- 50,000

Others- 10,000

 1%

 

 

Income Tax: What is Tax Collected at Source or TCS?

A tax collected by a seller or a service provider from the buyer at the time of sale of goods or provisions of services is TCS. It is applicable to certain goods and services such as alcohol, coal, toll plaza, etc. 

It is applicable on amounts involved in the transaction more than Rs 2 lakhs. The TCS rate varies from 0.1 per cent to 10 per cent depending upon the type of goods or services.

Income Tax: TCS slab 

Income Tax: TCS Vs TDS 

 

Factors TDS TCS
Applicability Applicable on sell of goods and services Applicable to income
Liability Deductor has to collect the tax Seller has to collect tax on the sale of
specified goods and services
Rate of taxation Higher than TCS Lower than TDS
Tax Payment Amount is deducted from the
payer’s account before payment
and deposited with the government		 Amount collected is paid directly
to the governemnt
Filing Return No filling required Filing as per Income Tax Act
Return on excess tax paid excess amount can be claimed as a refund excess amount cannot be refunded