When a customer pays less than the invoice because they deducted TDS, record the difference as TDS against that same invoice, not as an unpaid balance. Then tick it off when it shows in your annual tax statement and in the customer’s quarterly TDS certificate.
If it does not show up by the certificate date for that quarter, follow up with the customer just as you would for unpaid money, because until the credit reaches your PAN, that is what it is.
Why the small difference matters
TDS is tax the customer pays to the government on your behalf. You get the credit when you file your own income tax return, but only if the customer deposits it and files their TDS statement with your correct PAN.
If you do not match TDS to invoices, two things go wrong:
- Your outstanding list is wrong. A Rs 1,18,000 invoice paid with Rs 1,17,000 shows Rs 1,000 still due. Your staff chase the customer for money they have already paid to the government, and the customer is annoyed.
- Credits go missing. A customer who quotes the wrong PAN, or never files the statement, takes your credit with them. You find out only at return time, when it is hard to fix.
A worked example
Your invoice:
| Taxable value | Rs 1,00,000 |
| IGST 18% | Rs 18,000 |
| Invoice total | Rs 1,18,000 |
Say the TDS rate that applies to this payment is 1% (your CA can confirm the right rate and section). The customer deducts Rs 1,000 and pays you Rs 1,17,000.
In your books, the invoice is settled like this:
| Received in bank | Rs 1,17,000 |
| TDS deducted by customer | Rs 1,000 |
| Invoice settled | Rs 1,18,000 |
The Rs 1,000 sits as TDS receivable until you see it in your tax statement.
Is TDS worked out on the value before GST?
Usually, yes, when GST is shown separately on the invoice. The Income Tax Department’s page on TDS on purchase of goods says tax is deducted on the amount credited without GST, when the GST part is shown separately. For services, CBDT Circular 23/2017 says the same. The same page notes an exception: if the buyer deducts at the time of an advance payment, before crediting your account, it can apply to the whole amount.
So if a customer deducted 1% of Rs 1,18,000 (Rs 1,180) instead of 1% of Rs 1,00,000, ask why. Rates and rules depend on the type of payment, so check with your CA.
The forms have new names from 2026
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The documents you match against have new numbers:
| What it is | Earlier name | New name |
|---|---|---|
| TDS certificate for payments other than salary | Form 16A | Form 131 |
| Your annual tax statement | Form 26AS | Form 168 |
Form 131 is for tax deducted from 1 April 2026; the income tax portal still mixes the old and new names in places, so check what it shows.
For payments up to 31 March 2026 you will still see Form 16A and Form 26AS. From tax year 2026-27 you will see Form 131 and Form 168. Both statements are opened from the income tax e-filing portal.
How to match, step by step
1. Record TDS on the day the payment comes in
Do not leave the short amount “pending”. Mark it as TDS against the invoice the same day. If the customer pays several invoices together, split the TDS across them as the customer did. Ask their accounts team for the payment advice showing invoice numbers, TDS amount and section.
2. Keep a TDS register by customer and quarter
One simple sheet is enough: customer name, customer’s TAN, invoice number, payment date, amount paid, TDS amount, quarter. The quarter is decided by the date of deduction:
| Quarter | Months | Certificate to be issued by |
|---|---|---|
| Q1 | April–June | 15 August |
| Q2 | July–September | 15 November |
| Q3 | October–December | 15 February |
| Q4 | January–March | 15 June |
These dates come from the Income Tax Department’s Form 131 FAQ. The certificate must be downloaded by the customer from TRACES; one made in any other way is not valid.
3. Check your annual tax statement every quarter
After each quarter’s certificate date, open your annual tax statement (Form 26AS or Form 168) and compare it with your register, customer by customer. Look at three things: the deductor’s TAN, the amount paid, and the TDS amount.
4. Tick off what matches
When the statement shows the same TDS as your register, mark the entry as confirmed. The TDS receivable for that invoice is now closed.
5. Chase what does not match
Common reasons, and what to ask the customer:
- Nothing shows at all. The customer may not have deposited the tax or filed the statement. Ask for the challan details and the filing date.
- It shows under a different amount. The customer may have deducted on the value with GST, or combined invoices. Ask for a corrected statement.
- It shows in a different quarter. Usually harmless, but note it so your register agrees.
- Your PAN was wrong. The credit has gone to someone else or nowhere. The customer must file a correction statement and issue a revised certificate.
Send the request in writing, with the invoice number, payment date and TDS amount. A clear list gets fixed faster than a phone call.
6. Keep the certificates
You do not attach TDS certificates to your return, but keep them with your records. Your CA will want them when your return is prepared.
Checklist
- TDS recorded against the invoice on the day the payment arrives
- Payment advice collected for every short payment
- TDS worked out on the value before GST, where GST is shown separately
- TDS register kept by customer, TAN and quarter
- Annual tax statement (Form 26AS / Form 168) checked after each certificate date
- Mismatches sent to the customer in writing
- Certificates (Form 16A / Form 131) filed for your CA
Handling TDS in SmartWorker
SmartWorker records TDS short payment against the invoice, so the invoice is not chased as unpaid, and keeps a ‘TDS to match’ list of payments whose certificate you have not matched yet (the screen says Form 16A today). If you use Tally, enter payments in Tally as usual. Book a free demo to see it.