Glossary · also called Tax Deducted at Source, Income-tax TDS, GST TDS
What is TDS (Tax Deducted at Source)?
TDS: TDS (tax deducted at source) is tax that the person making a payment deducts from the amount payable and deposits with the government on behalf of the recipient. In India, contractors and suppliers mostly meet income-tax TDS on contract payments and, when billing certain government bodies, separate GST TDS; the recipient later claims credit for both.
Definition
TDS shifts part of tax collection to the payer. For a business receiving payments, it means the cash received is less than the invoice, and the difference becomes a tax credit to be claimed. Two separate kinds matter most to Indian contractors and manufacturers:
- Income-tax TDS. Payments to contractors and subcontractors have long been covered by section 194C of the Income-tax Act, 1961, at 1% for individuals and HUFs and 2% for others, above set thresholds. From 1 April 2026 the Income-tax Act, 2025 replaces the 1961 Act and renumbers TDS provisions. Confirm current section references, rates and thresholds with your tax advisor.
- GST TDS. Under section 51 of the CGST Act, government departments, local authorities, government agencies and other notified persons deduct GST TDS — 2% in total — on payments to suppliers where the contract value exceeds ₹2.5 lakh. The credit appears in the supplier’s electronic cash ledger after acceptance.
A related concept, TCS (tax collected at source), is collected by the seller rather than deducted by the buyer.
How it works
An example, with illustrative numbers only, for a certified RA bill to a government client:
| Amount (₹) | |
|---|---|
| Taxable value of certified work | 10,00,000 |
| GST at the applicable rate (say 18%) | 1,80,000 |
| Invoice total | 11,80,000 |
| Less income-tax TDS at 2% of ₹10,00,000 | (20,000) |
| Less GST TDS at 2% of ₹10,00,000 | (20,000) |
| Net received (before retention and other deductions) | 11,40,000 |
The invoice is still reported at full value in GSTR-1. The ₹20,000 income-tax TDS is claimed against income tax; the ₹20,000 GST TDS can be used to pay GST, for example in GSTR-3B.
Common mistakes
- Recording only the net receipt, so the customer appears to owe the TDS amount forever.
- Not reconciling TDS with the credits shown in the tax department’s statements.
- Mixing up income-tax TDS and GST TDS, which go to different ledgers.
In Zaptiz
Zaptiz Electrical supports TDS or TCS on sales invoices with a TDS/TCS register and CSV export. Zaptiz Construction includes TDS fields on GST invoices, and its GST & TDS agent runs monthly TDS checks with a filing calendar.