TDS & TCS

TDS & TCS

TDS Meaning, Filing, Return & Due Dates

TDS is basically a part of income tax. It has to be deducted by a person for certain payments made by them.

What is TDS? – TDS Meaning and Full Form

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf.

When should TDS be deducted and by whom?

Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose books are not required to be audited.
However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information.
For most payments rates of TDS are set in the income tax act and TDS is deducted by the payer basis of these specified rates. If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted from your income.
Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below the taxable limit so that they don’t deduct TDS on your interest income. In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS. The complete list of Specified Payments eligible for TDS deduction along with the rate of TDS.

What is the due date for depositing the TDS to the government?

The Tax Deducted at Source must be deposited to the government by the 7th of the subsequent month.
For instance: TDS deducted in the month of June must be paid to the government by the 7th of July. However, the TDS deducted in the month of March can be deposited till 30th April. For TDS deducted on rent and purchase of property, the TDS payment due date is 30 days from the end of the month in which TDS is deducted.

How to deposit TDS?

Tax Deducted at Source has to be deposited using Challan ITNS-281 on the government portal. Read our article for a step by step guide for depositing TDS payment online.

How and when to file TDS returns?

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows: Form 26QTDS on all payments except salaries Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May
Form No Transactions reported in the return Due Date
Form 24Q TDS on Salary
  • Q1 – 31st July
  • Q2 – 31st October
  • Q3 – 31st January
  • Q4 – 31st May
Form 27Q TDS on all payments made to non-residents except salaries
  • Q1 – 31st July
  • Q2 – 31st October
  • Q3 – 31st January
  • Q4 – 31st May
Form 26QB TDS on sale of property 30 days from the end of the month in which TDS is deducted
Form 26QC TDS on rent 30 days from the end of the month in which TDS is deducted

What is a TDS certificate?

Form 16, Form 16A, Form 16 B and Form 16 C are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.
Form Certificate of Frequency Due date
Form 16 TDS on salary payment Yearly 31st May
Form 16A TDS on non-salary payments Quarterly 15 days from due date of filing return
Form 16B TDS on sale of property Every transaction 15 days from due date of filing return
Form 16C TDS on rent Every transaction 15 days from due date of filing return

TDS credits in Form 26AS

It is important to understand how TDS is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. If TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement that is available to all PAN holders.
Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self-assessment tax. Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable to your income.

How to upload TDS statements

Follow the below guide for uploading TDS statements on the Income Tax Department website:
  • Visit Income Tax website. Login with your TAN.
  • Select e-File > Income Tax Forms > File Income Tax Forms on the dashboard
  • Select the relevant form and fill in the details
  • Validate the return using either DSC or EVC.

Types of TDS

Here are some of the income sources that qualify for TDS:
  • Salary
  • Payments to Contractor
  • Commission payments
  • Sale of House
  • Insurance Commission
  • Interest on securities
  • Interest other than interest on securities
  • Rent Payment
  • Professional fees
  • Online Gaming
  • Winning from games like a lottery, crossword puzzle, card, etc.

SMS Alerts for Higher Transparency

The income tax department has been sending SMS to the taxpayers from VK-ITDEFL that mentions the amount of tax deducted at source (TDS) against the PAN (Permanent Account Number) of the taxpayer. The SMS alert will let you know the TDS credited in respect of your income from salary, interest etc., every quarter. The amount of TDS would stand accumulated in your Form 26AS for the respective financial year.
This initiative was implemented by the Finance Ministry to increase transparency and reduce the cases of TDS mismatches at the time of income tax filing. Taxpayers can cross-check the information provided in the SMS with the information on the payslips to make sure that there is no mismatch. TDS mismatch could be a common reason for incorrect income tax return filing.

Tax liability in a case where TDS is already deducted from Income

On salary, TDS is deducted based on the income tax slab applicable to you. In the case of other income types, the TDS rates are fixed and vary between 10% and 20%. The tax rates are not based on your total income. Hence, you would suffer a TDS on your receipts in certain cases. Separately, you would be required to calculate your annual income by aggregating income from all sources.
Your actual tax liability would be calculated on the total taxable income. From the taxes calculated, you can claim credit for TDS deducted on your various receipts. Reduce the tax deducted at source from your actual tax liability to know the balance to be paid to the income tax department. You may have a refund too. In both cases, you have to file an income tax return and pay the tax due or claim a refund.

Frequently Asked Questions

A person who deducts TDS is responsible for the below:

  • Obtain the Tax Deduction Account Number and mention it in all the documents pertaining to TDS.
  • Deduct the TDS at the applicable rate.
  • Deposit the TDS amount with the Government within the specified due date.
  • File TDS returns within the specified due date.
  • Issue the TDS certificate to the payee within the specified due date.

As per Section 206AA of the Income Tax Act, if you do not furnish your Permanent Account Number to the deductor, then the deductor shall deduct TDS at the higher of the rate prescribed in the relevant provisions of the Act or at 20%.

PAN is a Permanent Account Number and TAN stands for Tax Deduction Account Number.

TAN should be obtained by the person responsible to deduct TDS, i.e., the deductor. The deductor is required to quote TAN in all the documents relating to TDS.

However, there is an exception- in the case of TDS on the purchase of land and building under Section 194-IA, the deductor is not required to obtain TAN and can use PAN for remitting the TDS.

Also, in the case of TDS on rent as per Section 194-IB, and TDS on payment of certain sums by Individuals or HUFs as per Section 194M, the deductor can use PAN instead of TAN for remitting TDS.

The Finance Bill, 2021 introduced these provisions for deduction and collection of income tax at source at such higher rates if any sum is paid or payable to a specified person who did not file the IT return. Section 206AB is on TDS and inserted after section 206AA of the IT Act. It allows deduction of TDS at higher rates on those buyers who do not submit the Permanent Account Number (PAN). Likewise, Section 206CCA is on TCS and was inserted after section 206CC of the IT Act, with the same explanation as above. To know more, read our article on “Sections 206AB and 206CCA”.

There are several types of TDS defined by the law. To know more, read our article with a summarised table on various TDS types “TDS Rate Chart”.

Every employer must deduct TDS on salary at what is known as the ‘average rate of income tax’ of the employee for the year. It is denoted as Average Income tax rate = Income tax liability (arrived at based on slab rates) divided by the employee’s predictable income for the assessment year.

TCS

Tax Collected at Source (TCS) – Rates, Payment, and Exemption

Indian Income Tax Act has provisions for tax collection at source or TCS. In these provisions, certain persons are required to collect a specified percentage of tax from their buyers on exceptional transactions. Most of these transactions are trading or business in nature. It does not affect the common man

What is Tax Collected at Source (TCS)?

Type of Goods or transactions Rate
Liquor of alcoholic nature, made for consumption by humans 1%
Timber wood under a forest leased 2.5%
Tendu leaves 5%
Timber wood by any other mode than forest leased 2.5%
Forest produce other than Tendu leaves and timber 2.5%
Scrap 1%
Minerals like lignite, coal and iron ore 1%
Purchase of Motor vehicle exceeding Rs.10 lakh 1%
Parking lot, Toll Plaza and Mining and Quarrying 2%
Where total turnover is more than Rs.10 crore in the previous financial year and receives sale consideration of any products of more than Rs.50 lakh, such seller must collect TCS upon receiving consideration from the buyer on such amount over and above Rs.50 lakh, as per Section 206C(IH). (Without PAN, then 1% is TCS) 0.1%
Tax collected at source (TCS) is the tax collected by the seller from the buyer on sale so that it can be deposited with the tax authorities. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the buyers. Such persons must have the Tax Collection Account Number to be able to collect TCS.
Section 206C of the Income Tax Act of 1961 has this provision.

Goods covered under TCS provisions and rates applicable to them

When the below-mentioned goods are utilised for the purpose of manufacturing, processing, or producing things, the taxes are not payable. If the same goods are utilised for trading purposes, then tax is payable. The tax payable is collected by the seller at the point of sale. The rate of TCS is different for goods specified under different categories :

When will a higher TCS rate apply?

Note that as per Section 206CCA, tax at a higher rate (other than rates in the above table) will be collected from the buyer if such buyer has-

  • Not filed ITR for the last two financial years before the relevant financial year in which TCS had to be collected.
  • The time limit to file ITR has expired.
  • The total of TCS and TDS was more than Rs.50,000 in each of these two financial years.

Such a higher TCS rate will be the highest of the following two rates-

  • Two times the TCS rate mentioned in the Income Tax Act ( in the above table)
  • 5%
In special cases given under Section 206C(IG), 5% TCS applies where the authorised dealer arranges remittance out of India of Rs.7 lakh or more in a financial year from a buyer of foreign currency remitting under Liberalized Remittance Scheme (LRS), not being the overseas tour program package. If Aadhaar or PAN is unavailable, then TCS is 10%. Such TCS is collected while debiting the buyer’s account or on receipt of money.

Classification of Seller for TCS

There are some specific people or organisations who have been classified as sellers for tax collected at the source. No other seller of goods can collect tax at source from the buyers apart from the following list:
  • Central Government
  • State Government
  • Local Authority
  • Statutory Corporation or Authority
  • Company registered under the Companies Act
  • Partnership firms
  • Co-operative Society
  • Any person or HUF who is subjected to an audit of accounts under the Income-tax Act for a particular financial year.

Classification of Buyers for TCS

A buyer is a person who obtains goods of specified nature in any sale or right to receive any such goods, by way of auction, tender or any other mode. However, the below buyers are exempted from the collection of tax at the source. In other words, TCS need not be collected from the following persons.
  • Public sector companies
  • Central Government
  • State Government
  • Embassy of High commission
  • Consulate and other Trade Representation of a Foreign Nation
  • Clubs such as sports clubs and social clubs
  • Where resident buyer utilises such purchase for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power (not for trading) and gives this declaration in writing in duplicate.

When should TCS be collected?

The seller must collect TCS at the earlier of the following two dates:

  • When debiting the money payable by the buyer to their account in the books of accounts.
  • Upon receipt of such money from the buyer in any mode such as cash issue of a cheque or draft.
In the case of the motor vehicle sale, the TCS is collected upon receipt of money or consideration for the motor vehicle from the buyer.

Example of TCS calculation

If a buyer purchases a car from a showroom that is valued at Rs.11 lakh then an amount of Rs.11,000 is the TCS deposited by the showroom. So, the total amount to be collected from the buyer is Rs.11,11,000.
An invoice was issued to the customer for Rs.12,000 on which 1% TCS was charged and collected at Rs.120. So, the total payable by the customer is Rs.12,120.

TCS Payments & Returns

  • All sums collected by an office of the Government should be deposited on the same day of collection.
  • The seller deposits the TCS amount in Challan 281 within 7 days from the last day of the month in which the tax was collected (monthly).
  • If the tax collector responsible for collecting the tax and depositing the same to the government does not collect the tax or after collecting doesn’t pay it to the government as per the above due dates, then he will be liable to pay interest of 1% per month or a part of the month.
  • Every tax collector has to submit a quarterly TCS return i.e. in Form 27EQ in respect of the tax collected by him in a particular quarter. The interest on delay in payment of TCS to the government should be paid before filing of the return.

TCS Certificate

  • When a tax collector files his quarterly TCS return i.e. Form 27EQ, he has to provide a TCS certificate to the purchaser of the goods.
  • Form 27D is the certificate issued for TCS returns filed. This certificate contains the following details:
  • Name of the Seller and Buyer
  • TAN of the seller i.e. who is filing the TCS return quarterly
  • PAN of both seller and buyer
  • Total tax collected by the seller
  • Date of collection
  • The rate of Tax applied

This certificate has to be issued within 15 days from the date of filing TCS quarterly returns. All the TCS due dates are summarised in the below table:

Quarter Ending Due date to file TCS return in Form 27EQ Date for generating Form 27D
For the quarter ending on 30th June 15th July 30th July
For the quarter ending on 30th September 15th October 30th October
For the quarter ending on 31st December 15th January 30th January
For the quarter ending on 31st March 15th May 30th May

TCS Exemptions

Tax collection at the source is exempted in the following cases:
  • When the eligible goods are used for personal consumption
  • The purchaser buys the goods for manufacturing, processing or production and not for the purpose of trading those goods.

TCS provision under GST for e-commerce sales

  • Any dealer or trader selling goods online on the e-commerce platform would get the payment from the online platform after deducting an amount tax @ 1 % under IGST Act. (0.5% in CGST & 0.5% in SGST)
  • The tax would have to be deposited to the government by the 10th of the next month.
  • All the dealers/traders are required to get registered under GST compulsorily.
  • These provisions are effective from 1st October 2018. Example: Mr Raj (seller) is a trader who sells clothes online on Flipkart (e-commerce operator). He receives an order for Rs.10,000 inclusive of commission. Flipkart would thus be deducting tax for Rs.100 (1% of Rs.10,000).

Submission of Form 24G

In the case of an office of the Government, where tax has been paid to the credit of the Central Government without the production of a challan associated with the deposit of the tax in a bank, below are the changes to the rules, Form 24G has to be submitted:

Rules where TDS is deposited without challan (changes to Rule 30)

  • If TDS has been deposited without a challan, the person to whom TDS has been reported for depositing to the government – such a person has to submit a statement in Form 24G to the agency authorised by the Principal Director of income tax (systems). [Rule 30(4)]
  • Such Form 24G must be submitted issued within 15 days from the end of the relevant month. For the month of March, the form should be submitted by 30th April 2019
  • Form 24G must be submitted (a) electronically under digital signature (b) electronically along with verification in Form 27A (c) or verified through an electronic process as prescribed
  • A person referred to in bullet 1 shall inform the Book Identification number generated to each of the deductors for whom the sum deducted has been deposited.
  • The Principal Director General of Income Tax (Systems) shall specify the procedure for furnishing and verification of statement Form 24G.

Rules where TCS under section 206C is deposited without challan (changes to Rule 37CA)

  • If TCS has been deposited without a challan, the person to whom the collector has reported the TCS for depositing to the government – such a person will submit Form 24G to the agency authorised by the Principal Director of income tax (systems).
  • Such Form 24G must be submitted within 15 days from the end of the relevant month.
  • If Form 24G pertains to the month of March, it must be submitted on or before 30th April.
  • Form 24G must be issued:
  • Electronically under digital signature
  • Electronically along with verification in Form 27A or
  • Verified through an electronic process as prescribed
  • A person referred to in bullet 1 shall inform the Book Identification number generated to each of the deductors for whom the sum deducted has been deposited.
  • The Principal Director General of Income Tax (Systems) shall specify the procedure for furnishing and verification of statement Form 24G.

Frequently Asked Questions

As per income tax law, the seller shall collect TCS from the buyer at the time of debiting the amount payable to the buyer’s account or at the time of receipt of such amount from the said buyer by any mode, whichever is earlier. So the amount debited to the buyer’s account or payment received by the seller shall be inclusive of VAT/excise/GST. Hence, one should collect the TCS inclusive of GST.

If the person fails to file the TCS return on or before the due date prescribed in the income tax law, a fee of Rs.200 per day must be paid, during which the failure continues. However, the amount of late fees shall not exceed the amount of TCS. One should deposit the late filing fees before filing the TCS return. Note that Rs.200 per day is a late filing fee, not a penalty.

Penalty under Section 271H can also be levied if the tax collector files an incorrect TCS return. In other words, a minimum penalty of Rs.10,000 and a maximum penalty of up to Rs.1,00,000 can be levied if the collector files an incorrect TCS return.

Yes, Form 26AS displays details of Tax Collected at Source (TCS) by a seller of specified goods when such goods were sold to you. It will display the seller’s details along with the TCS amount and the transaction on which tax was collected at the source.

Yes, the buyer can adjust the TCS later on while making a payment towards self-assessed tax liability in later assessment years.

Yes, the TCS collected on a buyer’s PAN is available for adjustment just like the TCS.

These provisions were enacted on account of the difficulties faced by the tax department assessing the income of assessees who enters into contracts for the sale of liquor, scrap, forest products, etc. Legal entities such as firms or AOPs are set up for this, and after the signing of the contract, no trace is left. Hence, to combat large-scale tax evasion by income tax assessees in such products, Section 206C of TCS was introduced.

These provisions were enacted on account of the difficulties faced by the tax department assessing the income of assessees who enters into contracts for the sale of liquor, scrap, forest products, etc. Legal entities such as firms or AOPs are set up for this, and after the signing of the contract, no trace is left. Hence, to combat large-scale tax evasion by income tax assessees in such products, Section 206C of TCS was introduced.

The tax collected at the source is the same as the income tax revenue collected in advance by the tax department for a financial year. It is used for the upliftment of backward sections of society, education, infrastructural development of the nation, etc.