What is TDS and TCS? A Detailed Guide

Tax Deducted at Source (TDS), and Tax Collected at Source (TCS) are two examples of indirect taxes levied by the government. And, it’s crucial for businesses to make such on-time tax payments to avoid penalties and stay compliant with the authorities. Let's learn more about them.

eTDS and eTCS

When the automation of collection, compilation and processing of TDS returns, the Income Tax department notified an "Electronic Filing of Returns under TDS Scheme, 2003". It is applicable to all deductors furnishing their TDS return in electronic form. Following the automation of TDS returns in 2003, ITD has notified an "Electronic Filing of Returns of TCS Scheme, 2005". Protean e-Governance Infrastructure Limited (Protean) as the e- TDS/TCS Intermediary receives e-TDS/TCS returns on behalf of the Income Tax Department. As per both scheme:

→ It is mandatory for corporate and government deductors to furnish their TDS and TCS returns in electronic form (e-TCS return) from F.Y. 2004-2005 onwards.
→ Deductors (other than government and corporates) may file TCS returns in electronic or physical form.
→ It is mandatory for people who are required to get their accounts audited u/s 44AB in the immediately preceding financial year. ( w. e. f. quarter ended 30th September, 2007)
→ It is mandatory for people having more than 20 deductees/collectors records in a quarterly statement for any quarter of the financial year. w. e. f. 1st April, 2010)
→ For all other categories of assessees, filing of E-TDS/TCS Statement is optional. Hence, they can still file their returns in physical form.

E-TDS/TCS statement is a Statement of TDS/ TCS under sections 200 and 206C respectively prepared in electronic form as per the data structure prescribed by the Income-tax Department. Computerization of the TDS statement (E-TDS/TCS Statement) has been carried out to cut down the compliance cost for deductors, correlating the deduction of taxes made by deductors with the deposited taxes and with the corresponding credits claimed by the deductees.

Difference between TDS and TCS

TDS and TCS are both incurred at the source of income. The question that instantly comes to our mind when we read about them at the same time is – Are sellers required to collect TCS and buyers/ beneficiaries deduct TDS while making payments/ discharging liabilities simultaneously? NO. TDS and TCS are not made on a single transaction. The transactions/ events that come under the TDS are different than the transactions that are covered under the provisions of TCS.

→ 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. Whereas, 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. Whereas, TCS deduction is applicable on sales of goods like timber, scrap, mineral wood etc.
→ TDS is applicable only on payments that exceed a certain amount. On the other hand, TCS is applicable on sales of specific goods which don’t include production or manufacturing material.

Preparation of e-TDS/TCS returns

→ e-TDS/TCS return has to be prepared in the data format issued by e-Filing Administrator which is available on the Income Tax Department website and NSDL-TIN website.
→ There is validation software available along with the data structure which should be used to validate the data structure of the e-TDS/TCS return prepared.

e-TDS/TCS return should have the following features: 

→ e-TDS/TCS return file should be furnished in a CD/Pen Drive.
→ It should not span across multiple computer media.
→ Each e-TDS/TCS return file should be accompanied by a duly filled and signed (by an authorized signatory).
→With effect from February 1, 2014, it is mandatory to submit Form 27A generated by TDS/TCS FVU (File Validation Utility). There should not be any overwriting/striking on Form No. 27A.
→If an e-TDS return file is required to be compressed, it should be compressed using Winzip or ZipItFast compression utility to ensure quick and smooth acceptance of the file.
→No bank challan or copy of TDS/TCS certificate should be filed along with e-TDS/TCS return file.
→There should not be any overwriting/striking on Form No. 27A.CD/Pen Drive should be virus-free.
→In case any of these requirements are not met the e-TDS/TCS return will not be accepted at TIN- FCs.

Online Filing of eTDS/TCS Statement

Step1 - The data structure (file format) in which the e-TDS / e-TCS return is to be prepared has to comply with that shown in the market.

Step2 - e-TDS/e-TCS return in accordance with the file formats is to be prepared in clean text ASCII format with 'txt' as filename extension. e-TDS/e-TCS return can be prepared using Return Preparation Utility provided by NSDL or any other third-party software

Step3 - Once the file has been prepared as per the file format, it should be verified using the File Validation Utility (FVU) provided by NSDL

Step4 - In case a file has any errors, the FVU will give a report of the errors. You should rectify the errors and verify the file again through the FVU.

Step5 - Generated .fvu file can be submitted at TIN-FC or uploaded at the Income Tax portal. Registration of the organization at the portal is mandatory for online uploading of TDS/TCS returns.

Forms to be used for filing annual/quarterly TDS/TCS returns

Conclusion

Eligible people may have to face legal consequences if they fail to pay their TDS/TCS returns on time. It can also lead to a fine of a minimum of Rs. 10,000 and a maximum of Rs. 1,00,000 as a failure to deposit the taxes. In a nutshell, it is vital for an individual or a company(whoever is bound under law) to fulfill their tax obligations timely. If TDS has been deducted from your salary, you can get it refunded, provided you file your returns on time. On the other hand, if you have collected TCS, you should make sure that the collected TCS is deposited with the correct authorities.