TDS vs TCS: Key Differences Every Business Owner Must Know (2025 Guide)
Introduction
In the Indian taxation landscape, two commonly misunderstood terms are TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). Business owners often confuse their applicability, compliance obligations, and reporting requirements. Yet, understanding the distinction is critical to avoid penalties and ensure smooth tax operations.
In this guide, the experts at Makwana Sweta & Associates break down TDS vs TCS in India, updated for FY 2024-25, to help businesses navigate their obligations correctly.
What is TDS?
TDS, or Tax Deducted at Source, is a mechanism by which the payer deducts a certain percentage of tax before making specific payments to the payee. This ensures that tax is collected at the source of income itself.
Common Transactions Where TDS Applies:
- Salary payments
- Rent (if monthly rent exceeds Rs. 50,000)
- Interest on securities
- Commission and brokerage
- Contract payments
Legal Provision:
TDS is governed under the Income Tax Act, 1961, particularly Sections 192 to 195.
Threshold Limits and Rates (FY 2024–25):
| Nature of Payment | TDS Rate | Threshold |
|---|---|---|
| Salary | Based on slab | No minimum limit |
| Rent (Individual) | 5% | Rs. 50,000/month |
| Professional fees | 10% | Rs. 30,000/year |
| Commission | 5% | Rs. 15,000/year |
| Interest from bank | 10% | Rs. 40,000 (Rs. 50,000 for seniors) |
Note: If PAN is not furnished, TDS is deducted at 20%.
What is TCS?
TCS, or Tax Collected at Source, is the tax collected by a seller from the buyer at the time of sale of specified goods or services.
Common Transactions Where TCS Applies:
- Sale of alcohol, timber, scrap, coal, and minerals
- Sale of motor vehicles > Rs. 10 lakh
- Sale of goods above Rs. 50 lakh in a financial year
- Overseas remittance and foreign tour packages
Legal Provision:
TCS is governed by Section 206C of the Income Tax Act, 1961.
TCS Rates (FY 2024–25):
| Nature of Transaction | TCS Rate |
| Sale of motor vehicle > Rs. 10 lakh | 1% |
| Sale of scrap | 1% |
| Sale of goods (above Rs. 50 lakh) | 0.1% |
| Foreign remittance under LRS (> Rs. 7 lakh) | 20% (above threshold) |
Update (2025): TCS on foreign remittance above Rs. 7 lakh continues at 20% under Liberalised Remittance Scheme (LRS).
Key Differences Between TDS and TCS
| Criteria | TDS | TCS |
| Full Form | Tax Deducted at Source | Tax Collected at Source |
| Collected By | Payer | Seller |
| Deducted/Collected From | Recipient/Payee | Buyer |
| Governing Section | Sections 192 to 195 | Section 206C |
| Nature of Payment | Expense-side (salary, rent, etc.) | Revenue-side (sale of goods/services) |
| Filing Form | Form 24Q/26Q | Form 27EQ |
| Due Date for Deposit | 7th of following month | 7th of following month |
| Statement Filing | Quarterly | Quarterly |
Compliance Obligations
For TDS:
- Obtain TAN (Tax Deduction Account Number)
- Deduct tax at correct rates
- Deposit TDS by the 7th of the following month
- File quarterly returns (Form 24Q, 26Q)
- Issue TDS certificates (Form 16, 16A)
For TCS:
- Obtain TAN
- Collect TCS at specified rates
- Deposit TCS by the 7th of the following month
- File Form 27EQ every quarter
- Issue TCS certificate (Form 27D)
Penalties for Non-Compliance
| Nature of Default | Penalty/Consequence |
| Failure to deduct TDS | 30% disallowance + interest |
| Late deposit of TDS/TCS | Interest @ 1–1.5% per month |
| Non-filing of returns | Rs. 200/day (Section 234E) |
| False deduction or incorrect filing | Penalty up to Rs. 1 lakh |
How Makwana Sweta & Associates Helps
Whether you need help with TDS compliance or TCS registration, Makwana Sweta & Associates, a trusted provider of Chartered Accountant Services in Mumbai, ensures complete support—from timely deductions to accurate filing. Our expert team of Tax Consultants in Mumbai also assists businesses pan-India.
Final Thoughts on TDS vs TCS
Understanding the difference between TDS and TCS in India is crucial for every business owner to avoid unnecessary penalties and maintain compliance. While both are tools for tax collection, their applicability varies greatly.
Need expert assistance? Reach out to Makwana Sweta & Associates—your go-to CA in Mumbai for seamless tax compliance.
Useful Links
- Outbound: Income Tax Act – Section 206C
- Inbound: TDS Guide for Small Businesses