TDS and TCS on sales transactions
These are income tax provisions that land in the middle of your sales ledger, and they are routinely confused because they look symmetrical. One is collected by the seller, the other deducted by the buyer, and in some transactions only one of them should apply.
- TCS on sale of goods
- Collected by the SELLER, added to the invoice
- TDS on purchase of goods
- Deducted by the BUYER, reducing payment
- If buyer deducts TDS
- Seller generally does not also collect TCS
- Both under GST
- Separate again — e-commerce and notified deductors
What to keep straight
TCS is collected, TDS is deducted
The seller collects TCS and adds it to what the buyer pays; the buyer deducts TDS and pays the seller less. Opposite directions, same underlying idea.
They rarely both apply
Where the buyer is required to deduct TDS on a purchase of goods, the seller generally does not also collect TCS on the same transaction. Applying both is a common double-count.
Thresholds are per party, per year
Both provisions have turnover conditions on the deductor or collector and value thresholds per counterparty in a financial year, so they start applying mid-year.
GST has its own TDS and TCS
Entirely separate provisions with the same initials — notified deductors and e-commerce operators. Do not conflate the two regimes.
Certificates and credit
Tax deducted or collected shows in the counterparty’s Form 26AS and is credited against their income tax liability, which is why the paperwork matters to them.
Accounting it correctly
TCS collected is a liability until paid over; TDS deducted from you is an asset until credited. Neither is income or expense.
How to account for it
- Identify the counterparty position. Whether the threshold has been crossed for this party this year, which is a running total rather than a per-invoice test.
- Collect or expect deduction. Add TCS to the invoice, or expect the buyer to pay you less by the TDS.
- Record it as a balance. TCS collected as a liability, TDS suffered as a receivable. The invoice is settled in full either way.
- Reconcile with 26AS. What was deducted from you should appear there. The balance in your TDS receivable account is what you are checking against.
TDS and TCS questions
What is the difference between TDS and TCS?
TCS is collected by the seller and added to the invoice; TDS is deducted by the buyer and reduces what they pay you. Both are advance income tax credited to the counterparty, but they move in opposite directions.
Do both apply to the same sale?
Generally not. Where the buyer is obliged to deduct TDS on a purchase of goods, the seller is usually relieved of collecting TCS on it. Applying both means one party has paid twice, and it happens more often than it should.
How do I track TDS my customers deduct?
Record the receipt at the amount actually banked; the shortfall books as TDS receivable and the invoice settles in full. That receivable balance is what you reconcile against Form 26AS.
Is this page tax advice?
No. Thresholds, rates and the interaction between the provisions change with each Finance Act. Confirm with your tax adviser.
Related
Settle the invoice, track the deduction
tBiz books the shortfall as TDS receivable and closes the invoice in full.