# Basic Concepts of TDS and TCS

## 1. Amount on which TDS is deducted

General rule: TDS is deducted on the amount excluding GST, provided GST is shown separately in the invoice.
If GST is not separately shown, TDS is deducted on the gross amount (inclusive of GST).
TCS: Collected on the amount including GST (subject to certain exceptions).

## 2. Time of Deduction (Trigger Point)

TDS must be deducted at the earlier of:

1. Time of credit to the payee's account, OR

2. Time of payment (cash / cheque / draft / any mode).

## 3. Exceptions — TDS deducted ONLY at the time of PAYMENT

For the following sections, deduction happens only when payment is actually made (not at credit):

Section	Nature
192	Salary
192A	Premature EPF withdrawal
194	Dividend
194B / 194BB / 194BA	Winnings — lottery, horse race, online games
194DA	Maturity proceeds of life insurance policy
194N	Cash withdrawal from bank
194LA	Compensation on compulsory acquisition

## 4. Surcharge & Health and Education Cess (HEC) on TDS rates

Payee is a Resident: TDS rate is the flat statutory rate. Surcharge and HEC are NOT added. Exception: TDS on Salary (Sec 192) — surcharge & HEC are added because salary is taxed on slab basis.
Payee is a Non-Resident: TDS rate is increased by Surcharge + HEC.

## 5. Surcharge in TCS

Amount received from Resident → Fixed rate (no surcharge).
Amount received from Non-Resident → Rate plus Surcharge and HEC.

Worked example

### Example 1

Example 1 (GST treatment): Mr. A, a contractor, raises a bill of ₹1,00,000 + 18% GST = ₹1,18,000 with GST shown separately. TDS u/s 194C @ 1% (individual payee) is on ₹1,00,000 = ₹1,000. If GST were not shown separately, TDS would be on ₹1,18,000 = ₹1,180.

### Example 2

Example 2 (Time of deduction): XYZ Ltd credits ₹50,000 to a professional's account on 15 March 2025 but pays him on 10 April 2025. TDS u/s 194J must be deducted on 15 March 2025 (date of credit, being earlier).

### Example 3

Example 3 (Surcharge — resident vs NR): Salary paid to a resident director earning ₹2 crore — slab + surcharge + HEC apply (Sec 192 exception). Royalty of ₹10 lakh paid to a NR — TDS @ 20% increased by surcharge + 4% HEC.

⚠️ Common exam mistakes

Applying TDS on the GST-inclusive amount even when GST is shown separately in the invoice.
Deducting TDS only at the time of payment for sections other than the listed exceptions (e.g., for 194C, 194J — must deduct at credit if earlier).
Adding surcharge / HEC on TDS for resident payees (other than salary).
Forgetting to gross up by surcharge + HEC when paying to a non-resident.

Reference:

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Basic Concepts of TDS / TCS

Worked example

⚠️ Common exam mistakes