TDS and TCS Return Filings

TCS and TDS are two of the most commonly used words when we talk about taxation. In the field of tax, TDS stands for Tax Deducted at Source while TCS stands for Tax Collected at Source. When they sound almost identical, you must be wondering how they actually differ. Also, when the Government works on a self-assessment model of tax, why do TDS and TCS come into play?

In this content, we have tried putting light on some of the important aspects of TDS and TCS. So, let us walk through the same to answer the above questions.

TDS

What is TDS?

For a speedy and efficient collection of taxes, the Income Tax Law has integrated a system of deduction of tax at the time of generation of income. This system is known as “Tax Deducted at Source”, generally called TDS. Under this mechanism, tax is deducted at the point of origination of income. The payer deducts tax, and the same is directly remitted to the Government by the payer on behalf of the payee. The concept of TDS was introduced to combat and reduce tax evasion.

The provisions of tax deducted at source currently apply to several payments like salary, interest, commission, brokerage, professional fees, royalty, etc.​The recipients of such income can claim an Income Tax TDS refund of the excess tax paid by them in the form of TDS at the time of filing their ITR if their tax deducted is more than the required amount.

What is the due date for a tax diductor to deposit TDS to the Government?

Tax deducted at source has to be deposited to the credit of the Central Government within the following due dates:

a) In case the amount is credited or paid in the month of March – On or before 30thApril following the month in which the deduction is made (i.e., March).

b) In any other case – Within seven days from the end of the month in which the deduction is made.

For example: If a person deducts tax at source in June, 2022, then he will have to deposit such amount of tax to the Government on or before 7thJuly, 2022.

However, in case the tax has been deducted under the following sections, then it has to be deposited to the Government within a period of 30 days from the end of the month in which the deduction is made:

a. Section 194-IA: TDS on payment on transfer of immovable property other than agricultural land.

b. Section 194-IB: TDS on payment of rent by certain individuals or Hindu undivided family (other than those covered u/s 194I).

c. Section 194M: TDS on payment for a contract, payment of commission or brokerage or fees for technical services by certain individuals or Hindu undivided family (other than those covered u/s 194C, 194H or 194J).

What if the due date to deduct tax or deposit the TDS to the Government is missed?

According to section 201 of the Income Tax Act, if a deductor fails to deduct tax at source or after deducting the same fails to deposit it to the Government, then he/she shall be considered to be an assessee-in-default and liable to pay simple interest at the following rates:

a) at 1% for every month or part of a month on the amount of such tax from the date on which it was supposed to be deducted to the date on which it is actually deducted; and

b) at 1.5% for every month or part of a month on the amount of such tax from the date it was deducted to the date on which it is actually paid to the Government.

TCS

What is TCS?

The tax collected at source, abbreviated as TCS, is another means of collecting tax at the very source of income by the Government. Under the TCS provisions, certain specified transactions require the seller to collect an additional amount as tax at the time of sale over and above the sale price and remit the same to the Central Government.

As per the TCS provisions of the Income Tax Act 1961, certain persons, being the sellers, must collect a specified percentage of tax at the time of debiting the amount payable by the purchaser to the account of the purchaser or at the time of receipt of the amount from the purchaser, whichever is earlier.

The person collecting tax has to obtain a Tax Collection Account Number and quote it in all challans, certificates and returns, and other documents pertaining to the transactions.

What is the due date for a tax collector to deposit TCS to the Government?

The tax collected at source has to be deposited to the credit of the Central Government within seven days from the last day of the month in which the tax is collected.

For example: If a seller collects tax from a buyer in May, 2022, then he will have to deposit such tax to the Government on or before 7thJune, 2022.

What if the due date to collect the tax or deposit the TCS to the Government is missed?

According to section 206C(7), if the person liable to collect tax at source fails to collect it or after collecting defaults in paying it to the Government, he shall be required to pay simple interest at 1% per month or part of the month on the amount of such tax from the date it was supposed to be collected to the date on which the tax was actually paid to the Government and such interest shall be deposited before furnishing the TCS statement for each quarter.

Types of TDS/TCS Return Forms

The tax deductor and tax collector are liable to deduct/collect tax, pay challan and file the TDS/TCS returns. There are various types of TCS and TDS Return Forms applicable for different scenarios based on the type of the transaction and the parties involved in such transaction. Below is the list of different types of TDS and TCS return filing forms:
 

Type of TDS&TCS Return Form

Form 24Q

Statement of deduction of tax at source from salary under section 192.

Form 26Q

Statement of deduction of tax at source on all payments other than salaries.

Form 27Q

Statement of deduction of tax on payment of interest, dividends, or any other sum payable to non-residents.

Form 26QB

Challan-cum-statement in case tax has been deducted under section 194-IA. In this case, no statement shall be filed separately.

Form 26QC

Challan-cum-statement in case tax has been deducted under section 194-IB. In this case, no statement shall be filed separately.

Form 26QD

Challan-cum-statement in case tax has been deducted under section 194-M. In this case, no statement shall be filed separately.

Form 27EQ

Statement of collection of tax at source to be filed quarterly with the Government.

Form 27D

Statement of collection of tax at source issued to the buyer by the tax collector to the effect that tax has been collected.

1) Suppose Mr. Verma deducts tax on payment of commissionu/s 194H on 25th September, 2022. In this case, the last TDS return filing date applicable to Mr. Verma would be 31st October, 2022. Hence, he will have to file TDS return Form 26Qon or before 31st October, 2022. Otherwise, he will become liable to pay the late TDS return filing penalty (discussed below) to the Government.

2) Suppose Mr. Singh collects tax on receipt of payment on sale of scrap u/s 206C on 16thMay, 2022. In this case, the last date of TCS return filing would be 15thJuly, 2022. Hence, Mr. Singh will have to file TCS return form 27EQ on or before 15thJuly, 2022. Otherwise, he will be required to pay the penalty (discussed below) to the Government for missing the TCS return due date.

E-TCS and E-TDS Return Filing

As per Section 206 of the Income Tax Act, all corporate and government deductors are compulsorily required to file their NSDL TDS returns electronically (e-TDS returns). However, for other deductors, TDS e return filing is optional. Hence, the other deductors have an option to go for TDS return filing online(i.e., TDS e filing) or file it in physical form.

Similarly, in the case of TCS also, it is mandatory for corporate and government collectors to file their TCS returns in electronic form (e-TCS return). However, for other collectors (collectors other than Government and corporates), online TCS return filing is not mandatory, and they have an option to file it electronically or in physical mode.

One can file TDS and TCS returns online using a TDS TCS return filing software also.

Penalty for Late Filing of TCSReturn and TDS Return

Every person liable to fulfil the TDS return filing process or TCS return filing procedure must comply with all the provisions of TDS and TCS quarterly return filing because if he fails in furnishing the TDS TCS returns, he shall be required to pay a penalty of a sum of two hundred rupees for every day during which the default continues.

However, such a fee cannot exceed the amount of TDS or TCS, as the case may be, for which the return is being furnished.

So, the taxpayers must make sure that they comply with all the provisions of TCS and TDS filing, like furnishing Form 26Q TDS or Form 27Q TDS or Form 27EQ before the applicable TDS and TCS return last dates to avoid any TCS/TDS late return filing penalty.