I went through the tutorial of uploading packages to https://test.pypi.org/ and I was successful in doing so.
However, $python setup.py sdist bdist_wheel produces a .whl file and a tar.gz file in the dist/ directory. twine allows uploading just the .whl or tar.gz file or both. I see many repositories on https://pypi.org/ have uploaded both the formats.
I want to understand what is the best practice. Is one format preferred over the other? If .whl file is enough for distributing my code, should I upload tar.gz file too? Or is there anything else I am completely missing here.
Best practice is to provide both.
A "built distribution" (.whl) for users that are able to use that distribution. This saves install time as a "built distribution" is pre-built and can just be dropped into place on the users machine, without any compilation step or without executing setup.py. There may be more than one built distribution for a given release -- once you start including compiled binaries with your distribution, they become platform-specific (see https://pypi.org/project/tensorflow/#files for example)
A "source distribution" (.tar.gz) is essentially a fallback for any user that cannot use your built distribution(s). Source distributions are not "built" meaning they may require compilation to install. At the minimum, they require executing a build-backend (for most projects, this is invoking setup.py with setuptools as the build-backend). Any installer should be able to install from source. In addition, a source distribution makes it easier for users who want to audit your source code (although this is possible with built distributions as well).
For the majority of Python projects, turning a "source distribution" into a "built distribution" results in a single pure-Python wheel (which is indicated by the none-any in a filename like projectname-1.2.3-py2.py3-none-any.whl). There's not much difference between this and the source distribution, but it's still best practice to upload both.