TDS vs TCS: What’s the Difference, When Are You Taxed, and How Much? Here's What Every Indian Earner Must Know
Understand the key differences between TDS (Tax Deducted at Source) and TCS (Tax Collected at Source), their applicable rates, exemptions under Budget 2025-26, and how they impact your salary, rent, or purchases.
In India’s complex tax structure, two important terms often confuse taxpayers — TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). While both are mechanisms to collect tax at the source of income or transaction, they function differently and apply to different scenarios.
The Union Budget 2025-26 brought key updates to both TDS and TCS thresholds, offering relief to senior citizens, property owners, and investors. Whether you're an employee, landlord, investor, or buyer of high-value goods, understanding these taxes is crucial to manage your finances better and avoid surprises.
What Is TDS?
TDS (Tax Deducted at Source) is the tax deducted by the payer (like your employer or tenant) before making a payment to you. It applies to various income sources such as salary, rent, interest, and contract payments. The deducted amount is directly deposited with the government, reducing chances of tax evasion.
When Does TDS Apply?
Here are some common scenarios and applicable TDS rates:
| Payment Type | TDS Rate |
|---|---|
| Salary | As per your income tax slab |
| Monthly rent above ₹50,000 | 10% for land/building/furniture, 2% for machinery |
| Lottery/horse race winnings > ₹10,000 | 30% |
| Commission on lottery tickets > ₹20,000/year | 2% |
| Property purchase over ₹50 lakh | 1% |
| Contract payments (above ₹30,000 single/₹1L yearly) | 1% (individual/HUF), 2% (others) |
📌 TDS is reflected in your PAN-linked Form 26AS and can be claimed while filing income tax returns.
What Is TCS?
TCS (Tax Collected at Source) is collected by the seller from the buyer while selling certain specified goods or services. This amount is added on top of the sale price and deposited with the government.
When Does TCS Apply?
TCS typically applies to the sale of high-value or specific goods. Here are a few examples:
| Product/Service | TCS Rate |
|---|---|
| Tendu leaves | 5% |
| Alcohol | 1% |
| Timber from forest lease | 2.5% |
| Scrap materials | 1% |
| Vehicles above ₹10 lakh | 1% |
| Toll plazas, mines, parking lots | 2% |
| Metals (like coal, lignite, iron) | 1% |
| Forest produce | 2.5% |
Just like TDS, TCS credits are visible in your Form 26AS and can be adjusted against your final tax liability.
TDS vs TCS: What’s the Core Difference?
| Aspect | TDS | TCS |
|---|---|---|
| Who deducts/collects? | Person making the payment | Seller collecting payment |
| Applies on? | Income (salary, rent, interest) | Sale of specific goods/services |
| Collected from? | Receiver of payment | Buyer |
| Reflected in? | Form 26AS | Form 26AS |
| Linked with? | PAN | PAN |
Budget 2025-26: New Exemptions and Limits
The Union Budget 2025-26 has raised thresholds for TDS and TCS, providing relief to various taxpayers:
-
Senior Citizens: No TDS on interest income up to ₹1 lakh annually.
-
Rental Income: Exemption on rent income up to ₹6 lakh per year.
-
Dividend & Mutual Fund Income: TDS exemption for amounts up to ₹10,000.
-
TCS under LRS (Liberalised Remittance Scheme): Applicable only above ₹10 lakh annual remittance.
Does Everyone Pay TDS on Salary?
No. TDS is applicable only if your annual income exceeds the basic exemption limit:
| Tax System | Exemption Limit |
|---|---|
| Old Tax Regime | ₹2.5 lakh |
| New Tax Regime | ₹4 lakh |
For example, under the new tax regime, if your salary is up to ₹33,333 per month, you’re not liable for TDS.
Example: TDS on ₹25,000 Salary
A salary of ₹25,000/month (₹3 lakh annually) does not attract TDS under the new tax regime as it falls below the ₹4 lakh exemption threshold. Under the old regime, TDS applies if income exceeds ₹2.5 lakh.
Conclusion
Whether you’re earning a salary, receiving rent, or purchasing a high-value car, TDS and TCS affect your day-to-day finances. The good news is that both are credited to your PAN and can be adjusted while filing income tax returns. Understanding their application can help you plan better, avoid surprises, and maximize your tax refunds.
