Is TDS different from TCS? Which transactions attract TCS?

- By A Tax Expert

The term TDS stands for Tax Deduction at Source and TCS stands for Tax Collection at Source. In technical terms, these are mere obligations rather than taxes which are deducted at the time of payment. It is hard comparing and differentiating between TDS and TCS but this article will help you understand both in a better way:

Definition of TDS

TDS or tax deducted at source is an indirect method of tax collection. It integrates the system of pay as you earn and collect when the same is earned. As per the tax laws, any payment made on certain expenses or payments which fall under the scope of TDS provisions is to be paid after deducting the specified TDS percentage.

In simpler terms, at the time of making payment, the payer holds back a pre decided percentage of amount and deposits the same with the government. This helps the government charge the tax in advance and the recipients gets the net payment after tax i.e. TDS. Some examples where TDS in case of income tax are collected, are salary, payment of rent, technical or professional fee payment or brokerage etc.

Definition of TCS

In India, a seller or the company collects tax at the time of sale of certain items/provision of service. The seller transfers the tax collected to the government account and issues TCS certificates in favour of the buyers.

Some common items that may come under TCS are tolls, liquor, jewellery, bullion etc.

Terms of difference between TDS and TDS

The two terms, although relatively confusing, can be differentiated on the following terms:

  1. TDS refers to the amount deducted from the income of recipient in the form of tax. TCS[SA1]  is the amount accumulated by the seller as tax.
  2. TDS is supposed to be paid when an expense reaches a pre-defined limit. TCS on the contrary, has to be collected whenever there is a sale of specified items.
  3. The payer deducts TDS while the seller is responsible for TCS collection.


So basically, Tax Deduction at Source happens at the time of making payments which implies to deduction of tax on the income of the recipient, while a Tax Collection at Source is to be collected on sale of goods notified.