Taxes are levied in several countries of the world, mainly to generate a constant source of revenue for the government. This, in turn, boosts their economy and provides income for all the expenditures that the government must take care of. However, there isn’t any singular type of tax but instead, several forms of taxes on several kinds of services, fields, or goods. GST and TDS are two major types of taxes that generate revenue for the country. They are levied in very different contexts. However, that is not the only context they differ in.
GST vs TDS
The main difference between Goods and Service Tax(GST) and Tax Deducted at Source(TDS) lies in the fields where the taxes are applied. Goods and Service Tax(GST) is applied as an indirect tax on various goods and services at the final stage of consumption whereas Tax Deducted at Source(TDS) is used to collect tax while minimizing the chances of tax evasion upon the various sources of income, thus deducted at source.
Difference Between GST and TDS in Tabular Form
|Parameters of Comparison||GST||TDS|
|Terminology||GST stands for Goods and Services Tax.||TDS stands for Tax Deducted at Source.|
|Subject of Deduction||GST is applied as an indirect tax on the supply and purchase of various goods and services throughout the country.||TDS is applied to various sources of income generated by an individual.|
|Purpose||Establishes a common national market by integrating different tax structures into it.||Minimizes chances of tax evasion by citizens while parallelly maintaining a smooth collection of revenue.|
|Returns||There are 13 types of GST returns that must be filed by taxpayers quarterly/monthly and annually.||These are quarterly statements that must be filed by the taxpayer and submitted to the income tax department every quarter of a financial year.|
|Major Advantage||GST replaces all the indirect taxes and integrates them in itself, thus reducing a significant burden on the administration.||TDS helps provide a steady source of revenue for the government.|
|Major Disadvantage||Essential services can get too expensive.||TDS can require the hiring of professional accountants since the calculation and filing can get quite complicated.|
What is GST?
There are 4 types of GST that can be levied on different goods and services, based on which the rate of tax keeps differing. The four types of GST are CGST, SGST, IGST, and UTGST:-
- Integrated Goods and Services Tax(IGST): Governed by the IGST act under the new tax regime, IGST is a tax that is applied on transactions that take place between two different states or a state and a Union Territory(UT). The central government is responsible for collecting these taxes, following which the collected amount will be distributed among the states.
- State Goods and Services Tax(SGST): Governed by the SGST Act, the SGST act applies to all goods and service transactions that take place within the state i.e., intrastate transactions. In the case of the supply of goods and services, both SGST and CGST would be applied whereas SGST is applied upon purchases of such goods and services. The respective state government is responsible for the collection of the taxes and claiming them.
- Central Goods and Services Tax(CGST): Similar to SGST, CGST is also governed by the CGST Act and applies to intrastate transactions. All the taxes collected and revenue earned is claimed by the central government and they are held responsible for the same.
- Union Territory Goods and Services Tax(UTGST): UTGST or UGST can be described as the complement of SGST as UGST is applied only to the supply of goods and services in the Union Territories of India and thus the name UTGST. Thus it is applicable in Chandigarh, Dadra, Nagar Haveli, Lakshadweep, Daman & Diu, and Andaman & Nicobar Islands. Similar to the previous kinds, UTGST is governed by the UTGST act and all the revenue collected is claimed by the UT government. Thus, we can describe UGST as the replacement of SGST in UTs and similarly, CGST will be levied along with it UGST in UTs.
Advantages of GST
- It replaces multiple indirect taxes by integrating all of them under GST, thus removing the cascading effect.
- Minimizes economic inequalities by creating a common national market.
- Allows easy filing of taxes and convenient business operations.
- Due to the provision of online facilities for all kinds of tax operations such as filing, registering, payments, and other transactions, there is a lesser chance for tax leakages and further i.e., corruption.
- Efficiently regulates the unorganized sector of the country and boosts the logistics industry.
Disadvantages of GST
- Unreasonably large increase in the prices of various services and goods.
- Since there is no GST on fuels, it attracts a lot of other taxes that might be more irregular and expensive than GST.
- Training the tax officers might prove to be more expensive or even impractical as there might be an inadequacy of officers with required expertise levels.
- GST was put into effect in the middle of a financial year, throwing the economy into chaos in the initial months until they adjusted.
- Since GST is an online system, a significant portion of the population might not have access to the required IT infrastructure and thus, can prove to be a limitation.
What is TDS?
TDS stands for Tax Deducted at Source and is used to levy taxes on different sources of income that an individual is generating. However, these sources of income need not be just salaries and can also be as simple as lottery winnings or insurance money. TDS was introduced and regulated by the income tax act, of 1961, and is levied on all sources of income mentioned in the same. TDS helps in ensuring a steady source of revenue for the government and also minimizes the chances of tax evasion parallelly.
How does TDS work?
- When an individual is making any sort of payments that are mentioned under the income tax act, a TDS will be deducted upon his/her payments.
- The individual making the payment is accountable for deducting some amount of tax, the rate of which will be described in the income tax act and will be referred to as the deductor.
- He must also submit the taxes he collected to the government and will be held responsible for the same.
- This is done by issuing a TDS certificate and filing the same with the government to say that the particular individual has been subjected to a deduction.
- This certificate will also be sent to those individuals with all the necessary details such as the amount, source of income, date and time, etc.
- The individual on the other side of the payment i.e., to whom the payment is being made, will be subjected to the deduction of money.
- He is referred to as the deductee and will be taxed appropriately depending upon the type of source of income.
- The form 26AS keeps track of all the taxes deducted at the source from an individual. This is done by being registered against their PAN or their name in Form 26AS.
The certificates mentioned above are of two types: form 16 and form 16A. These two forms are provided to the salaried class of people and the non-salaried class of people by the employers or the organizations who act as the deductors, under the income tax act. It is important to note that TDS will not be deducted if the individual or a Hindu Undivided Family(HUF) whose book does not require any sort of audit.
As mentioned previously, the rates of TDS will differ from individual to individual depending upon their source of income, so let us take a look at some of the common areas where TDS is applicable:-
- Interest on securities: 10% TDS through section 193
- Interest on payments other than securities: 10% TDS through section 193
- Insurance commission: 5% TDS through section 194D
- Brokerage/commission other than insurance: 5% (for payment above 15,000 rupees) TDS through section 194H
- Life insurance: 1% (for payments above 1,00,000 rupees in a single financial year) TDS through section 194DA
- Winnings from races: 30% TDS through section 194BB
- Winnings from other games: 30% TDS through section 194B
- Payment relevant to properties/land:1% TDS through section 194IA
- Payment on rent/HUF over 50%: 5% TDS through section 194IB
We can observe that salary hasn’t been mentioned in the above criterion and that is because the salary has a wide number of categories concerning how the rate of TDS is applicable. Let us individually discuss what the tax regime of TDS for salaries look like:-
- All the individual under the age of 60 years and annual income above 2.5 lakh will be subjected to TDS.
- Individuals earning an annual income between 2.5 lakh to 5 lakh will be subjected to a TDS liability of 5%.
- Individuals earning an annual income between 5 lakh to 7.5 lakh will be subjected to a TDS liability of 10%.
- Individuals earning an annual income between 7.5 lakh to 10 lakh will be subjected to a TDS liability of 15%.
- Individuals earning an annual income between 10 lakh to 12.5 lakh will be subjected to a TDS liability of 20%.
- Individuals earning an annual income between 12.5 lakh to 15 lakh will be subjected to a TDS liability of 25%.
- If the annual income of the individual is above 30%, then they will be subjected to a TDS liability of 30%.
What are TDS returns?
- TDS returns can be described as the quarterly statements relevant to the taxes paid by an individual that needs to be submitted to the income-tax department.
- They must contain details such as the amount of taxes paid, sections under which they were paid, challan number of the transactions, and PAN details of individuals on either side of the payment i.e., the deductor and the deductee.
- These can be filed and submitted to employers or organizations that hold possession of a valid Tax Collection and Deduction Account Number(TAN).
- These returns must be filed duly within the mentioned due date, every quarter.
- The quarters of a financial year are counted as:
First quarter: 1st April - 30th June, and the due date is 31st August
Second quarter: 1st July - 30th September, and the due date is 31st October
Third quarter: 1st October - 31st December, and the due date is 31st January of the following year
Fourth quarter: 1st January - 31st March, and the due date is 31st May of the following year.
Individuals who do not file their TDS returns on time will be penalized appropriately. This includes not filing at all, delay in filing, defaults in filing, entering incorrect details, and failure of TDS payments.
Main Differences Between GST and TDS In Points
- GST stands for Goods and Service Tax whereas TDS stands for Tax Deducted at Source.
- GST is applied upon the sale and purchase of goods throughout the country whereas TDS is applied to different sources of income mentioned in the income tax act.
- GST helps establish a common national market by preventing the cascading effect whereas TDS helps minimize any possibility of tax evasion as all it is levied right at the source of the income.
- GST returns are of 13 different types that must be filed annually and either quarterly or monthly. On the other hand, TDS returns must be filed quarterly and submitted to the income tax department.
- A major advantage of the concept of GST is that all the major indirect taxes are integrated into GST, thus decreasing the burden on the administration whereas TDS provides a good, steady source of revenue for the government.
- One of the major disadvantages of implementing GST is that there can be an unreasonably large hike in essential items whereas TDS requires an adequate amount of staff with expertise in accounting, for which there are enough resources.
Upon summarizing our discussions on TDS and GST, we can conclude that GST is applied to transactions of various goods and services whereas TDS is applied to different sources of income that an individual generates. However, both these taxes are not applied in every field but only in certain fields that are mentioned by the income tax department.