Difference Between TDS and GST: Collection, Scope and Purpose

The general belief is that all taxes operate on the same basis, when in fact, they do not. TDS (Tax Deducted at Source) and GST (Goods and Services Tax) are two completely separate tax systems; however, the two systems are frequently confused with each other. It is only after thinking about what each system taxes, and at what point of time it applies to your income, that you can actually understand how TDS and GST differ.

With regard to income, TDS (Tax Deducted at Source) has to do with how much of your income is taxed before you receive your salary (or your professional fees, rental income, etc.) as a result of certain payments being made to you from your employer. In terms of practical differences, TDS and GST differ significantly based on the time. The timing difference between TDS and GST is that TDS is deducted at the time that income is received by you. TDS cannot be withheld by you as an individual taxpayer; rather, when a payment is received that exceeds the prescribed allowable limit, TDS is automatically deducted by the payer.

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Unlike TDS, which is a direct tax that reduces the amount of income you receive as a form of income, GST is an indirect tax collected by sellers on supplies of goods or services. Sellers collect GST from buyers and pay it to the government. TDS is based on the income you receive, while GST is based on the total amount of your transaction.

Additionally, there is confusion regarding which payments apply under TDS and which are covered under GST. The reason for this is that the rules governing TDS and GST are very different from each other. TDS applies exclusively to certain specified payments after meeting established threshold amounts, whereas GST applies to businesses when their aggregate turnover surpasses prescribed amounts, or when they sell goods or services deemed "taxable." When examining an example of GST versus TDS from a practical standpoint, it becomes apparent that GST and TDS can potentially both impact the same entity but for entirely different purposes.

Understanding the difference between TDS and GST makes compliance simpler and reduces surprises later. Once you know which tax applies where, things stop feeling complicated and start making sense.