Taxation · Tax Deduction or Collection at Source and Advance Tax

Introduction to TDS, TCS and Advance Tax Framework

Updated 4 October 2026 · Fact-checked

TDS, TCS and advance tax are pay-as-you-earn methods under the Income-tax Act, 2025. The payer deducts tax (TDS), the seller collects it (TCS), or you pay it yourself in instalments during the tax year (advance tax). To solve questions, identify the deductor and deductee, apply the rule, then give credit against final tax.

Understand Introduction to TDS, TCS and Advance Tax Framework

The government does not wait until the end of the year to collect income tax. It collects tax as income is earned or spent. This is the pay-as-you-earn idea. It gives steady revenue, reduces evasion, and spreads your tax burden across the year.

There are three routes. Tax deducted at source (TDS): the person making a specified payment (the deductor) cuts tax from it and pays that tax to the government. The person receiving the payment (the deductee) gets the net amount. Tax collected at source (TCS): the seller of specified goods or provider of specified services (the collector) collects tax from the buyer on top of the sale price, and deposits it. Advance tax: you estimate your own income for the year and pay the tax yourself in instalments, without anyone deducting it.

All three work within the tax year under the Income-tax Act, 2025. The tax year is the 12-month period starting on 1 April. For tax year 2026-27 it runs from 1 April 2026 to 31 March 2027. Income is taxed in the same tax year in which it is earned, so you do not think in terms of a separate previous year and assessment year.

Section 390 is the basic provision on tax deduction and collection at source (TDS and TCS). The detailed TDS and TCS rates and payment categories are set out in the Act's tables, which you study in the later topics. Advance tax is a separate set of provisions, and you should describe it in words rather than quote a section number for it.

TDS and TCS are not extra taxes. They are advance payments of your own tax liability. When you file your return, you compute your total tax and subtract the TDS, TCS and advance tax already paid. If the balance is positive, you pay it as self-assessment tax. If negative, you claim a refund. The credit is available only if the tax is actually deposited and reported against your tax identification number.

Key rules to remember

Net tax payable at filing: Tax on total income (with cess) − TDS − TCS − advance tax paid = self-assessment tax payable (or refund if negative); This is the basic reconciliation. Credit is given for tax deducted, collected or paid in the tax year.
Liability to pay advance tax: Advance tax is payable if estimated tax liability for the tax year, after deducting TDS and TCS, is ₹10,000 or more; Check this threshold before computing instalments.
Advance tax instalments (assessees other than eligible presumptive taxpayers): By 15 June: not less than 15% | By 15 September: not less than 45% | By 15 December: not less than 75% | By 15 March: 100% of the advance tax; These are cumulative percentages. The instalment due on each date is the increase over the amount already due.
Eligible presumptive taxpayers: Entire advance tax in one instalment, on or before 15 March; Applies to eligible assessees under the presumptive scheme for business (the 44AD equivalent) and for professionals (the 44ADA equivalent). Check conditions in the presumptive taxation topic.
Senior citizen exemption: Resident individual aged 60 years or more with no business or professional income need not pay advance tax; They pay the balance as self-assessment tax.
Roles: TDS: deductor pays, deductee receives net | TCS: collector sells, buyer pays extra; TDS is cut from the payment. TCS is added to the price.

How to solve Introduction to TDS, TCS and Advance Tax Framework questions

Use this order for any theory or numerical question on the basic TDS, TCS and advance tax framework.

1Read the facts and identify who pays whom, and for what: salary, interest, rent, sale of goods, and so on.
2Decide the mechanism. If the payer cuts tax from the payment, it is TDS. If the seller adds tax to the price, it is TCS. If no one deducts or collects, the assessee pays advance tax.
3Name the roles clearly: deductor and deductee for TDS, collector and buyer for TCS.
4Fix the tax year in which the payment or income arises. Use the term 'tax year', not 'previous year' or 'assessment year'.
5For a numerical question, compute the tax on estimated total income including cess, then subtract expected TDS and TCS.
6Check whether the balance is ₹10,000 or more. If it is, advance tax applies, subject to exceptions such as the senior citizen rule and the single-instalment rule for eligible presumptive taxpayers. Then split it using the cumulative minimum percentages.
7Show credit at filing: tax on total income less TDS, TCS and advance tax gives self-assessment tax or refund.
8Close with a one-line conclusion that states the amount payable and the due dates.

Quickest way: Three-question shortcut for MCQs and short answers

When to use it: Use this under time pressure, especially in the 30 marks of MCQs, where there is no negative marking and no reasoning is needed.

Ask: who cuts or adds the tax? Payer cuts = TDS. Seller adds = TCS. You pay yourself = advance tax.
For advance tax numerical, first subtract TDS and TCS from the tax liability. If the result is under ₹10,000, the answer is nil advance tax.
Memorise the cumulative ladder 15, 45, 75, 100 and the dates 15 June, 15 September, 15 December, 15 March. Multiply the net liability by each percentage and subtract the earlier figure. Treat each percentage as the minimum cumulative amount due by that date.
For eliminating MCQ options, drop any option that says TDS is an additional tax, or that the deductee deposits the tax, or that uses 'assessment year'.
In written answers, use a short format: definition, roles, working, conclusion. Show the working lines separately, because step marks are awarded for them.

Common mistakes in Introduction to TDS, TCS and Advance Tax Framework

Treating TDS or TCS as an extra tax over and above income tax.
The word 'deduction' sounds like a cost separate from your tax.
Fix: State clearly that TDS and TCS are advance payments of the assessee's own tax, adjusted against final tax liability.
Confusing TDS with TCS, or mixing up who deposits the tax.
Both involve a third party handling tax and both have similar names.
Fix: Remember: TDS is cut from what the payer pays out. TCS is collected on top of what the seller receives. The deductor or collector deposits the tax, not the deductee or buyer.
Using 'previous year' and 'assessment year' in answers.
Older study habits from the Income-tax Act, 1961 carry over.
Fix: Use 'tax year' and the 2025 Act's terms throughout, for example tax year 2026-27.
Computing advance tax on total tax without subtracting TDS and TCS.
Students forget that the base for the ₹10,000 test and for instalments is the net liability.
Fix: Always write 'Tax liability − TDS − TCS = advance tax base' as the first line of working.
Treating the instalment percentages as separate amounts instead of cumulative.
15%, 45%, 75%, 100% look like shares that should add up to 100%.
Fix: These are running totals. The amounts per instalment, if you pay exactly the minimum each time, are 15%, 30%, 30% and 25% of the net advance tax.
Applying advance tax to every assessee.
Students remember the rule but not the exceptions.
Fix: Check the ₹10,000 threshold and the resident senior citizen exception (no business or professional income) before computing instalments.

Worked examples

Example 1

Explain how pay-as-you-earn works under the Income-tax Act, 2025. Using the example of X Ltd paying salary to Ravi, and a seller collecting tax from Ravi on a sale, identify the deductor, deductee and collector, and state how Ravi gets credit for the tax.

Show the solution

Principle: tax is collected during the tax year as income is earned or spent, rather than only at the end. Section 390 is the basic provision on deduction and collection of tax at source.
Salary case: X Ltd pays salary, so it cuts tax at source. X Ltd is the deductor. Ravi, who receives the salary, is the deductee. X Ltd deposits the tax with the government.
Sale case: the seller collects tax from Ravi when he buys specified goods or services of the kind covered by the TCS provisions. The seller is the collector. Ravi, as buyer, bears the tax in addition to the price.
Advance tax: if Ravi has other income on which nobody deducts tax, and his net liability is ₹10,000 or more, he pays advance tax himself in instalments.
Credit: at the time of filing his return for the tax year, Ravi computes his total tax, subtracts the TDS, TCS and advance tax already paid, and pays the balance as self-assessment tax or claims a refund.

Answer: X Ltd is the deductor and Ravi the deductee for TDS on salary. The seller is the collector for TCS, and Ravi is the buyer. Both TDS and TCS are advance payments of Ravi's own tax, and he gets credit for them against his total tax liability for the tax year.

Example 2

Meena, a resident individual aged 40 with business income (not an eligible presumptive taxpayer), estimates her tax liability (including cess) for tax year 2026-27 at ₹1,20,000. TDS of ₹90,000 will be deducted on her receipts and TCS of ₹5,000 will be collected on her purchases. Compute her advance tax and the minimum instalments.

Show the solution

Net liability = ₹1,20,000 − ₹90,000 − ₹5,000 = ₹25,000.
Test: ₹25,000 is ₹10,000 or more, so advance tax is payable. Meena is not a senior citizen and not an eligible presumptive taxpayer, so no exemption or single-instalment rule applies.
By 15 June: at least 15% of ₹25,000 = ₹3,750.
By 15 September: cumulative at least 45% = ₹11,250. Instalment = ₹11,250 − ₹3,750 = ₹7,500.
By 15 December: cumulative at least 75% = ₹18,750. Instalment = ₹18,750 − ₹11,250 = ₹7,500.
By 15 March: cumulative 100% = ₹25,000. Instalment = ₹25,000 − ₹18,750 = ₹6,250.
Check: ₹3,750 + ₹7,500 + ₹7,500 + ₹6,250 = ₹25,000.

Answer: Meena's advance tax is ₹25,000. At minimum she pays ₹3,750 by 15 June 2026, ₹7,500 by 15 September 2026, ₹7,500 by 15 December 2026 and ₹6,250 by 15 March 2027.

Exam tips

Write 'tax year' every time. Using 'assessment year' or 'previous year' in a 2025 Act answer signals that you studied the wrong law.
In numerical questions, show the line 'tax − TDS − TCS' and the ₹10,000 test explicitly. Examiners award step marks for it.
For instalments, give both the cumulative figure and the amount due on each date, so a small slip does not cost the whole answer.
In theory questions on difference between TDS and TCS, structure the answer as a short comparison: who acts, when, how it is recovered, who deposits.
Quote section 390 only for the basic provision on deduction and collection of tax at source. Describe advance tax in words, and do not guess other section numbers if you are not sure.

Practice questions from Tax Deduction or Collection at Source and Advance Tax

Introduction to TDS, TCS and Advance Tax Framework in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Introduction to TDS, TCS and Advance Tax Framework: frequently asked questions

What is the difference between TDS and TCS?

In TDS, the payer deducts tax from a specified payment and pays the net amount to the receiver. In TCS, the seller collects tax from the buyer on top of the price. In both cases the deductor or collector deposits the tax, and the other party claims credit.

What does section 390 of the Income-tax Act, 2025 deal with?

Section 390 is the basic provision on deduction and collection of tax at source (TDS and TCS). The detailed rates and categories sit in the Act's tables. Advance tax is a separate set of provisions, so describe it in words and do not cite section 390 for it.

Who has to pay advance tax?

Any assessee whose estimated tax liability for the tax year, after subtracting TDS and TCS, is ₹10,000 or more. A resident individual aged 60 years or more with no business or professional income is not required to pay advance tax. Eligible assessees under the presumptive schemes for business (44AD equivalent) and professionals (44ADA equivalent) pay the whole advance tax by 15 March.

Can I claim credit for TDS and TCS in my return?

Yes. TDS and TCS are adjusted against your total tax for the tax year. Credit depends on the tax having been deposited and shown against your tax identification number, so check your tax credit statement before filing.