Contractor bill › Deductions

Deductions on a contractor’s bill

The client rarely pays the full bill amount. Knowing each deduction lets you check the cheque and claim the money back later.

Retention or security deposit

A percentage (often 5% or 10%, as the contract says) is held back from each bill and paid after the defect liability period. It is still your income: track it, and ask for its release on time.

Income-tax TDS

A client paying a contractor deducts TDS: usually 1% when the contractor is an individual or HUF and 2% for others. The provision is now in section 393 of the Income-tax Act, 2025 (it was section 194C). When GST is shown separately on the bill, TDS is worked out on the value without GST, as CBDT explained in Circular 23/2017. The deduction shows in your Form 26AS / annual statement, and you claim it in your income tax return.

GST TDS

Government departments, local authorities and some public bodies deduct 2% GST TDS (1% CGST + 1% SGST, or 2% IGST) under section 51 of the CGST Act when the contract value is above ₹2.5 lakh. It is worked out on the taxable value. It reaches your electronic cash ledger once the client files its return; accept it on the GST portal.

Recoveries

• Mobilisation advance: recovered in instalments from bills, as the contract sets.
• Material issued by the client (cement, steel): its cost is recovered.
• Other: water, electricity, penalties; type the reason so it prints.

Check the net

Net payable = bill amount (value + GST) − retention − TDS − GST TDS − recoveries. The maker prints each line, so you can compare it with the client’s payment advice.