Tax deducted at source
Also called: TDS, Tax collected at source, TCS · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Beyond NCERT
Meaning
Tax deducted at source (TDS) is tax cut at the moment a payment is made. The payer keeps back part of the payment and deposits it with the government. Tax collected at source (TCS) works at the point of sale: the seller collects extra tax from the buyer and deposits it. Both collect tax early and create a record of the transaction. This widens the tax net and makes evasion harder.
Example
An employer deducts TDS from an employee's monthly salary and pays it to the government. When someone sends money abroad under the Liberalised Remittance Scheme (LRS) for education or medical treatment, the bank collects TCS. The TCS rate for these purposes was cut to 2% in 2026-27 (verify current).
Don't confuse with
- A separate tax: TDS and TCS are ways of collecting income tax, not new taxes. The amount collected counts toward the person's final tax, and any excess is refunded.
Related concepts
- Income tax
- Corporate tax
- Minimum Alternate Tax
- Capital gains tax
- Securities Transaction Tax
- Angel tax
- Wealth tax and inheritance tax
- Paper taxes
- Faceless assessment