TDS v/s TCS: Key Differences and Compliance Rules in 2025

In India’s taxation framework, TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are two important mechanisms designed to ensure early collection of taxes and reduce tax evasion. Both are governed by the Income-tax Act, 1961, but they operate differently.

For businesses, startups, and individuals, understanding the differences between TDS and TCS, their compliance rules in 2025, and reporting obligations is essential to avoid penalties and ensure seamless tax compliance.

This comprehensive guide provides a detailed, ICAI-compliant explanation of TDS vs TCS in 2025, with examples, compliance rules, due dates, penalties, and practical tips.

What is TDS (Tax Deducted at Source)?

TDS is a system under which tax is deducted at the time of making certain payments such as salary, interest, rent, professional fees, and contract payments.

• The payer (deductor) deducts tax before making payment to the payee (deductee).
• Deducted tax is deposited with the Central Government.
• TDS ensures that tax is collected as income is earned rather than at the end of the year.

Example:
If a company pays ₹50,000 as professional fees, it must deduct 10% TDS (₹5,000) and pay ₹45,000 to the consultant. The ₹5,000 is deposited with the government.

What is TCS (Tax Collected at Source)?

TCS is a tax collected by the seller at the time of sale of certain specified goods or services.

• The seller collects the tax from the buyer over and above the sale value.
• The collected amount is deposited with the Central Government.
• TCS is applicable only on specific goods and services notified under the Income-tax Act.

Example:
If a seller sells scrap worth ₹1,00,000, he must collect TCS at 1% (₹1,000) from the buyer, making the total invoice value ₹1,01,000. The ₹1,000 is deposited with the government.

Key Differences Between TDS and TCS in 2025

Particulars	TDS (Tax Deducted at Source)	TCS (Tax Collected at Source)
Who collects?	Deductor (payer of income)	Collector (seller of goods/services)
When deducted/collected?	At the time of making payment	At the time of receiving payment
Applicability	Salary, rent, professional fees, contracts, interest, etc.	Sale of specified goods (e.g., scrap, liquor, minerals) and e-commerce transactions
Rates	Varies from 1% to 30% depending on nature of payment	Varies from 0.1% to 5% depending on goods/services
Forms for return filing	Quarterly TDS return in Form 24Q/26Q/27Q	Quarterly TCS return in Form 27EQ
Certificate issued	Form 16/16A	Form 27D
Responsible person	Deductor (emp loyer, payer, etc.)	Collector (seller)

Compliance Rules for TDS in 2025

1. TAN Requirement
   • Every deductor must obtain a TAN (Tax Deduction and Collection Account Number).
2. Deposit of TDS
   • TDS deducted must be deposited with the government within the prescribed timelines (usually by the 7th of the next month).
   • For March, the due date is 30th April.
3. TDS Returns Filing
   • Quarterly returns must be filed:
     • Form 24Q: Salary
     • Form 26Q: Non-salary payments
     • Form 27Q: Payments to non-residents
4. Issue of TDS Certificates
   • Deductors must issue Form 16 (salary) and Form 16A (non-salary) to deductees.
5. Threshold Exemptions
   • TDS is not deducted if payment is below prescribed thresholds (e.g., salary below taxable limit, rent under ₹2.4 lakh per year).

Compliance Rules for TCS in 2025

1. TAN Requirement
   • Collectors must also obtain a TAN for depositing TCS.
2. Deposit of TCS
   • TCS collected must be deposited to the government by the 7th of the next month.
3. TCS Returns Filing
   • Quarterly return must be filed in Form 27EQ.
4. Issue of TCS Certificates
   • Collector must issue Form 27D to the buyer as proof of tax collected.
5. Applicability on New Transactions (2025)
   • TCS continues to apply on overseas tour packages, foreign remittances under LRS, and e-commerce transactions.
   • Rate revisions and threshold changes are notified annually in the Finance Act.

Due Dates for TDS & TCS Compliance (2025)

• Deposit of TDS/TCS: By the 7th of next month (30th April for March).
• Quarterly Returns:
  • Q1 (Apr–Jun): 31st July
  • Q2 (Jul–Sep): 31st October
  • Q3 (Oct–Dec): 31st January
  • Q4 (Jan–Mar): 31st May
• Certificates:
  • Form 16: By 15th June
  • Form 16A: Within 15 days of filing TDS return
  • Form 27D: Within 15 days of filing TCS return

Penalties for Non-Compliance

1. Late Deduction/Collection
   • Interest at 1% per month (for TDS) or 1% per month (for TCS).
2. Late Deposit
   • Interest at 1.5% per month for delayed deposit of TDS.
3. Late Filing of Returns
   • Late fee under Section 234E: ₹200 per day (subject to maximum of TDS/TCS amount).
   • Penalty under Section 271H: ₹10,000 to ₹1,00,000.
4. Failure to Issue Certificates
   • Penalty of ₹100 per day of default.

Practical Examples

• TDS Example:
  A company pays ₹10 lakh as annual rent to a landlord. TDS @10% = ₹1 lakh. The company deducts ₹1 lakh and pays ₹9 lakh to the landlord.
• TCS Example:
  A seller sells tendu leaves worth ₹2 lakh. TCS @5% = ₹10,000. The seller collects ₹2.10 lakh from the buyer and deposits ₹10,000 with the government.

Best Practices for TDS & TCS Compliance in 2025

• Maintain updated records of all payments and collections.
• Reconcile books with Form 26AS and AIS (Annual Information Statement).
• Use accounting software with TDS/TCS modules.
• Verify PAN of deductees/collectees to avoid higher deduction (20%).
• File returns before due dates to avoid penalties.
• Seek professional guidance for cross-border transactions.

FAQs on TDS vs TCS

Q1. Can TDS and TCS apply to the same transaction?
Yes, in rare cases such as motor vehicle sales, both may apply depending on thresholds and transaction type.

Q2. Is TAN required separately for TDS and TCS?
No. One TAN can be used for both TDS and TCS compliance.

Q3. Can an individual deduct TDS?
Yes, if the individual is liable to audit under the Income Tax Act.

Q4. What happens if TDS/TCS is deducted but not deposited?
The deductor/collector faces penalties, interest, and even prosecution under the Income Tax Act.

Q5. What are the latest TCS provisions on foreign remittances?
TCS is applicable on remittances under the Liberalised Remittance Scheme (LRS) beyond prescribed thresholds, with rates notified annually.

Conclusion: Ensure Hassle-Free TDS & TCS Compliance with PGACA

In 2025, TDS and TCS remain crucial mechanisms for early tax collection and ensuring transparency. While TDS applies on payments like salary, rent, and professional fees, TCS applies on specified sales like scrap, minerals, and overseas tour packages.

Non-compliance attracts heavy penalties, making it essential for businesses and individuals to stay updated with the latest rules.

At PGACA, we provide end-to-end assistance with:

• TDS and TCS compliance.
• Filing of quarterly returns.
• PAN/TAN advisory.
• Representation before tax authorities.

Stay compliant, avoid penalties, and focus on your business growth. Contact PGACA today for expert tax and compliance support.