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A customer pays an invoice short by the TDS it withheld and the accountant does not know how to record the gap.
The invoice is fully settled: cash plus tax withheld equals the invoice total. The withheld tax is an asset, TDS Receivable, claimed later against income tax.
Keep a TDS Receivable ledger, ideally with customer name, TAN and section or payment code noted on every entry.
Customer ledger at nil, TDS Receivable balance that ties to the TDS credit statement at year end.
When a customer pays you less than the invoice because it deducted TDS, the invoice is still fully paid. You record the cash in the bank, the tax withheld as TDS Receivable, and clear the customer for the full invoice. The withheld amount is your tax credit, not a loss.
The entry in one line
| Account | Debit | Credit |
|---|---|---|
| Bank | Cash received | |
| TDS Receivable | Tax withheld by customer | |
| Customer (debtor) | Full invoice amount |
Before this, you would already have booked the sale: debit the customer for the full invoice, credit Sales and credit GST Output.
Worked example
You raise an invoice for ₹1,18,000: ₹1,00,000 of services plus ₹18,000 GST. The customer deducts 10 percent TDS on ₹1,00,000 (assumed rate for illustration), which is ₹10,000. It pays ₹1,08,000.
Step 1 — when you raise the invoice
- Dr Customer ₹1,18,000
- Cr Sales ₹1,00,000
- Cr GST Output ₹18,000
Step 2 — when the payment arrives
- Dr Bank ₹1,08,000
- Dr TDS Receivable ₹10,000
- Cr Customer ₹1,18,000
Check: ₹1,08,000 plus ₹10,000 is ₹1,18,000. The customer ledger is now nil. Note that TDS was worked out on ₹1,00,000, not ₹1,18,000. If the customer had deducted on the full ₹1,18,000, TDS would have been ₹11,800 and the cash ₹1,06,200; the extra ₹1,800 is a matter to raise with the customer.
Why can the ₹10,000 not be written off as a discount or bank charge?
Because the customer has (or should have) paid it to the government against your PAN. It shows up as a credit in your TDS credit statement: Form 26AS for periods up to 31 March 2026, or Form 168 from tax year 2026-27. When you file your income tax return, that credit reduces the tax you pay.
If you book it as a discount, three things go wrong:
- Your profit is understated by ₹10,000.
- You may forget to claim the credit, so you pay ₹10,000 more tax than you owe.
- Nobody notices if the customer never deposits the tax, because there is no balance to check.
Where does each amount appear?
| Amount | Bank statement | Customer ledger | TDS Receivable ledger | Form 26AS / Form 168 |
|---|---|---|---|---|
| ₹1,08,000 cash | Yes, as a credit | Yes | No | No |
| ₹10,000 TDS | No | Yes | Yes | Yes, against the customer’s TAN |
| ₹1,18,000 invoice | No | Yes | No | Usually the amount paid or credited is shown as ₹1,00,000 |
This table is why bank-to-books matching gets confusing: the bank shows ₹1,08,000 but the invoice says ₹1,18,000. The ₹10,000 gap is the TDS, nothing else.
How does the TDS Receivable balance clear at year end?
At year end, total your TDS Receivable ledger and compare it with your TDS credit statement, customer by customer.
- Download the statement from the e-filing portal.
- Match each customer’s TAN and amount to your ledger.
- Where both agree, the credit is ready to claim.
- Where your ledger shows TDS but the statement does not, chase the customer.
- When you file the return, transfer the matched balance against income tax payable. Any excess over your tax comes back as a refund.
A TDS Receivable balance that keeps growing year after year usually means credits were never matched or claimed.
What to read next
- Next in the series: How deducted TDS becomes a credit in Form 26AS: the four documents
- Invoice matching with TDS: net bank credit vs gross invoice
- Recovering missing TDS credit through Form 26AS and Form 168
TransactIG reconciles TDS and matches bank lines to the books, so a ₹1,08,000 credit is tied to the ₹1,18,000 invoice with the ₹10,000 TDS shown as an exception item until it appears in the statement. See TDS reconciliation software and reconciliation software for India.