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A student confuses TDS and TCS because both are tax at source and both show up in Form 26AS.
Direction decides it. TDS reduces what the payer pays out; TCS increases what the buyer pays in. The credit always goes to the person whose money was taken.
Separate ledgers for TDS payable, TDS receivable, TCS payable and TCS receivable, and do not mix GST TCS with income tax TCS.
Correct entries on both sides and credits claimed by the right party.
With TDS (tax deducted at source), the payer deducts tax from the amount it pays. With TCS (tax collected at source), the seller collects tax on top of what the buyer pays. Both are deposited with the government, and the other party gets a credit in its TDS credit statement: Form 26AS for periods up to 31 March 2026, or Form 168 from tax year 2026-27.
TDS vs TCS side by side
| Point | TDS | TCS |
|---|---|---|
| Who acts | The payer (buyer of services, tenant, employer) | The seller |
| What happens to the money | Tax is taken out of the payment | Tax is added on top of the sale |
| Who gets the credit | The payee | The buyer |
| Example | Professional fees, rent, contractor bills | Scrap sales, certain motor vehicles, foreign remittances |
| Section under the 2025 Act | Section 393 (non-salary) | Section 394 |
| Certificate | Form 16A, replaced by Form 131 | Form 27D under the 1961 Act |
Which everyday transactions attract TDS, and which attract TCS?
TDS is the common one. A business deducts it when paying contractors, professionals, landlords, commission agents and e-commerce sellers (Section 194O, 0.1 percent from 1 October 2024).
TCS is narrower. The seller collects it on specified sales such as scrap and certain forest produce, motor vehicles above ₹10 lakh, and on foreign remittances and overseas tour packages collected by banks and travel firms.
Worked example
Two transactions of ₹1,00,000 each:
- Professional fee with TDS. You owe a consultant ₹1,00,000. At 10 percent TDS you deduct ₹10,000 and pay ₹90,000. The consultant gets a ₹10,000 credit.
- Scrap sale with TCS. You sell scrap for ₹1,00,000. At 1 percent TCS you collect ₹1,000 extra. The buyer pays ₹1,01,000 before GST. The buyer gets a ₹1,000 credit.
In the first case the cash moving is less than the bill. In the second it is more than the price.
How is each recorded, and what changed on 1 April 2025?
- TDS, as payer: Dr Expense ₹1,00,000; Cr Vendor ₹90,000; Cr TDS Payable ₹10,000.
- TCS, as seller: Dr Customer ₹1,01,000; Cr Sales ₹1,00,000; Cr TCS Payable ₹1,000.
The change: TCS on sale of goods under Section 206C(1H), which used to apply above ₹50 lakh of sales to one buyer, stopped applying from 1 April 2025. Buyers continue to deduct TDS on purchase of goods under Section 194Q (payment code 1031 from April 2026). So for large goods purchases, there is now only one regime to track.
Also keep GST TCS separate. E-commerce operators collect 0.5 percent under Section 52 of the CGST Act from 10 July 2024; that is a GST credit, not an income tax one.
What to read next
- Next in the series: TCS reconciliation under Section 206C
- What is TDS deduction?
TransactIG reconciles TDS against your books and the credit statement. See TDS reconciliation software and reconciliation software for India.