If a client deducts TDS from your invoice, the invoice is not short-paid. Record the money that reached your bank as cash received and the deducted part as TDS receivable. Together they settle the full invoice. After that, your only job is to check that the TDS really shows against your PAN in Form 26AS or AIS, and to collect the Form 16A certificate.
Here's how to do that step by step, with real numbers.
Why your client paid less than your invoice#
Say you run a design agency in Pune. You bill a client in Bengaluru ₹1,00,000 for a website project. The client transfers ₹90,000 and writes "TDS deducted @10%" in the payment note.
The client hasn't kept your ₹10,000. Under the Income Tax Act, many business clients have to deduct tax at source (TDS) when they pay for services. They then deposit that amount with the government against your PAN. You claim it later as tax already paid when you file your income tax return.
So that ₹10,000 is still your money. It's just sitting with the government as an advance against your tax.
The trouble starts when your books record only ₹90,000. Then the invoice shows ₹10,000 "outstanding" for months. Your receivables look wrong, your team chases a client who doesn't owe anything, and at year end your CA has to untangle it all.
Common TDS rates on services, and why GST is usually left out#
Most agencies, consultants and service businesses will see one of two sections:
| Section | Typical work | Commonly deducted rate |
|---|---|---|
| 194J | Professional fees (consulting, legal, design, CA work), and fees for technical services | 10% for professional fees; 2% for technical services |
| 194C | Contract work (printing, event setup, transport, content production under contract, manpower) | 1% if you're an individual or HUF; 2% for firms and companies |
Some points to keep in mind:
- Thresholds apply. TDS kicks in only above certain payment limits per year or per bill, and these limits have been revised in recent budgets. Check the current limits on the Income Tax Department's website or ask your CA.
- No PAN on record means higher TDS. If the client doesn't have your correct PAN, they may deduct at a much higher rate. Share your PAN on every invoice.
- Which section applies can be argued. Whether your work counts as "professional", "technical" or "contract" is the client's call first. If the rate looks wrong, ask them politely. Your CA can confirm.
TDS on the value before GST. A CBDT circular says that when the GST amount is shown separately on the invoice, TDS is worked out on the amount without GST. That's one more reason to show CGST/SGST or IGST as separate lines.
Example: your fee is ₹1,00,000, plus 18% IGST of ₹18,000, so the invoice total is ₹1,18,000. At 10% under 194J:
- TDS = 10% of ₹1,00,000 = ₹10,000
- Client pays = ₹1,18,000 − ₹10,000 = ₹1,08,000
If the client works out TDS on the full ₹1,18,000 (₹11,800), they've deducted ₹1,800 too much. That money isn't lost, because it still goes to your PAN. But it blocks your working capital, so it's worth raising early.
Don't mix this up with TDS under GST, which applies mainly to government departments and certain notified bodies. That's a separate system and shows up on the GST portal, not in Form 26AS.
How to record the payment so the invoice closes#
Use the ₹1,18,000 example. When ₹1,08,000 reaches your bank, record one receipt that settles ₹1,18,000 in two parts:
- Bank: ₹1,08,000 (cash actually received)
- TDS receivable: ₹10,000 (deducted by the client, to be claimed in your income tax return)
In accounting terms, your CA would post it like this:
- Bank A/c Dr ₹1,08,000
- TDS Receivable A/c Dr ₹10,000
- To Client A/c ₹1,18,000
Now the invoice shows fully paid, the client balance is zero, and ₹10,000 sits as an asset in your books.
Some habits that save trouble later:
- Record it against the same invoice and project. You can then see what each project actually earned, and you won't chase a "balance" that isn't real.
- Write down the section and rate in the payment note, for example "TDS 194J @10%". It makes the quarterly check much faster.
- Don't raise a credit note for the TDS. A credit note cuts your sale and your GST. TDS doesn't change either one. Your GST is still payable on the full ₹1,00,000 taxable value.
- Part payments work the same way. If the client pays in two instalments, each one can carry its own TDS split.
In Clyrix, payments are recorded against the invoice and the project, so the project shows as settled rather than 10% unpaid (see invoicing). Ask your CA how they want the TDS part labelled in your books so it matches their working.
Get Form 16A from the client#
Form 16A is the TDS certificate your client gives you for non-salary payments. It shows your PAN, the amount paid, the TDS deducted, the section and the quarter.
Clients generally issue it after they file their quarterly TDS return. The certificate is generated from the government's TRACES system. In practice, expect it a few weeks after each quarter ends.
What to check on each Form 16A:
- Your PAN and name are correct
- The amount paid and TDS match your receipt entries
- The section (194J, 194C and so on) is the one you expected
- The quarter is right
Keep these certificates in one folder per financial year. Your CA will ask for them.
Tick off every deduction against Form 26AS / AIS each quarter#
Form 16A is the client's word. Form 26AS (and the more detailed AIS, the Annual Information Statement) is the government's record. In the end, you can only claim TDS that shows up there against your PAN.
You can view both by logging into the income tax e-filing portal with your PAN. Then do a simple check once a quarter:
- List every TDS receivable entry from your books for the quarter: client, invoice number, amount, TDS.
- Open Form 26AS / AIS and filter by deductor (your client's name and TAN).
- Tick each entry that matches.
- Mark anything missing, short or in the wrong quarter.
Typical mismatches and what they usually mean:
- Entry missing. The client hasn't filed their TDS return yet, or quoted the wrong PAN.
- Amount lower. They deducted less, or reported only part of it.
- Wrong quarter. They booked the expense in a different month from your invoice. This is usually fine, but note it.
A Delhi consultancy with 15 clients can finish this in about 30 minutes a quarter if every receipt already carries the TDS split. Leave it to March and it can take a full weekend.
If an amount still isn't in Form 26AS after a reasonable time, the client has to correct their TDS return. You can't fix it from your side. For anything about claiming TDS in your own return, talk to your CA.
A message to chase missing TDS certificates#
Keep it polite and specific. Here's a template you can send on WhatsApp or email:
Hi Ankit, hope you're well.
For our reconciliation, we're matching TDS deducted on our invoices for the April–June quarter. We've recorded:
- Invoice INV/25-26/014 dated 12 May: TDS ₹10,000 (194J @10%)
- Invoice INV/25-26/021 dated 18 June: TDS ₹4,500 (194J @10%)
Could you please share Form 16A for this quarter once your TDS return is filed? Also, these entries aren't showing in our Form 26AS yet. Could you check that our PAN (ABCDE1234F) was quoted correctly?
Thanks a lot, Priya, Accounts, Studio Kite
If you haven't heard back in two weeks, send a short follow-up. If the gap still isn't fixed close to year end, ask your CA to speak to the client's accountant directly. A five-minute CA-to-CA call often sorts out what weeks of reminders couldn't.
To make sure TDS never looks like an unpaid invoice again, split every receipt into cash and TDS, check Form 26AS each quarter, and keep your Form 16As in one place. If your team already sends task and approval updates on WhatsApp, it's easy to add these reminders to the same routine. More practical guides are on the Clyrix blog.
