TDS and TCS

The idea

For some kinds of payments, the person paying keeps back a small part and posts it to the government in the receiver's name. That is TDS — tax deducted at source. The payer is the tax postman: the money is the receiver's tax, the payer only carries it. TCS — tax collected at source — is the same postman walking the other way: in a few cases the seller collects extra tax from the buyer and posts it.

When you are the postman

The stockist pays the landlord ₹50,000 a month for the godown. Rent above a certain limit falls under TDS. Suppose the rate is 10% — an example only; the current limit and rate are on incometax.gov.in.

The rent expense is still the full ₹50,000. The landlord receives ₹45,000 in his bank and ₹5,000 as tax already paid in his name. The ₹5,000 sitting in TDS Payable is not ours; it is a liability until we deposit it.

Being a postman has duties:

1. Get a TAN — the number a business needs to deduct and deposit TDS.
2. Collect the receiver's PAN. Without it, the law asks for a higher deduction.
3. Deposit on time, by the due date after the month of deduction.
4. File the TDS return every quarter, listing each deduction against each PAN.
5. Give the receiver a TDS certificate.

Common payments that attract TDS in a stockist's business: salary (chapter 2.7), rent, transport and other contractors, professional fees to a CA or consultant, and commission. Each has its own limit and rate. Large buyers must also deduct TDS on purchases of goods — people call this "194Q" from its old section number. Check which apply to you each year; the Income-tax Act, 2025 renumbered these sections from 1 April 2026.

When someone posts for you

A large supermarket chain buys from you. Its bill is ₹1,00,000, but it pays ₹99,900 and deducts ₹100 as TDS. That ₹100 is your tax, already paid.

At year-end, TDS Receivable is set off against your own income tax. Before you claim it, check that the deduction appears in your tax credit statement on the income tax portal — the record people know as Form 26AS or the AIS. If the chain did not file its TDS return, the ₹100 is missing there and you cannot claim it until they correct it.

And TCS?

TCS runs the other way: the seller adds tax to the bill and collects it. It applies only to certain goods and transactions, and the list has changed more than once. If you sell through an online marketplace, the platform may collect a small TCS under GST from your payouts. Ask your CA which TCS rules, if any, apply to you this year.

Common mistake

Booking a customer's short payment as "discount" or "balance written off". The ₹100 the supermarket chain kept back was your tax, paid on your behalf. Written off, it disappears from your books, and you pay that tax again at year-end. Every short payment from a large customer should be checked against the tax credit statement before it is written off.

Where you'll use this

In Part 3, companies pay stockists for schemes, display and commission. When a payment arrives short, the gap may be TDS, not a rejected claim. Check the tax credit statement before you argue with the company.

Check yourself

1. Rent is ₹30,000 and the TDS is ₹3,000. What amount is debited to Rent?
2. Who owns the money sitting in TDS Payable?
3. A customer pays ₹49,950 against a ₹50,000 bill and says ₹50 is TDS. Where do you check this?

Answers

1. ₹30,000. The expense is the full rent; ₹27,000 goes to the landlord and ₹3,000 to the government.
2. The receiver — it is their tax. The payer only owes it to the government until it is deposited.
3. In your tax credit statement on the income tax portal (Form 26AS or the AIS).