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Accountants deduct TDS only when they pay, so bills booked earlier carry interest and credits land in the wrong quarter.
TDS falls due at the earlier of credit in the books or payment. Credit includes booking an invoice, a provision or a suspense entry.
TDS calculated in the ERP at bill booking, with advances also carrying TDS, and a March provision checklist.
TDS in the right month and quarter, no interest, and vendor credits in the expected quarter.
For most payments, TDS is due at the earlier of two moments: when the amount is credited to the payee in your books, or when you pay it. Approving the bill, a vendor’s reminder or the month-end close does not move that date.
What counts as a credit?
Booking an invoice to the vendor’s account is the obvious one. But a year-end provision, or an entry to a suspense account, generally also counts where the payee is identifiable. The table shows common cases.
| Scenario | First event | When TDS is due |
|---|---|---|
| Invoice booked 10 June, paid 25 June | Credit, 10 June | June |
| Advance paid 5 May, invoice booked 20 June | Payment, 5 May | May, on the advance |
| Part payment before invoice | Payment | On the part paid, when paid |
| Year-end provision on 31 March for a known vendor | Credit, 31 March | March |
| Retention money held back from a contractor bill | Credit of the full bill | On the full bill when booked, including the retention |
Salary is the exception: TDS on salary is worked out and deducted at payment.
Worked example
A contractor bill of ₹2,00,000 (company contractor, 2 percent TDS = ₹4,000) is booked on 28 March 2026 and paid on 12 April 2026.
- First event: credit on 28 March.
- TDS belongs to: March 2026.
- Deposit by: 30 April 2026, the special deadline for March.
If the accountant instead deducts only on 12 April and treats it as April TDS, two things happen. Interest of 1 percent a month or part of a month runs from 28 March (when it was deductible) to 12 April (when deducted): two part-months, so ₹80. And the credit appears in the wrong quarter of the vendor’s statement, as Q1 of the next year rather than Q4.
What happens if you deduct late, or only at payment?
Under Section 201(1A) of the 1961 Act:
- Late deduction: 1 percent a month or part of a month, from when TDS was deductible to when it was deducted.
- Late deposit: 1.5 percent a month or part of a month, from deduction to deposit.
Interest is paid through the TDS challan and is not a deductible business expense. Check the corresponding provision for deductions from tax year 2026-27 under the Income-tax Act 2025.
The vendor also suffers: the credit lands in a later quarter than their invoice, which confuses their reconciliation.
What to read next
- Next in the series: Why does my TDS payable balance not match what I deposited?
- TDS year-end March close
- Why is there interest showing on my TDS challan?
TransactIG reconciles TDS, so deductions booked in one month and deposited in another stand out as exceptions. See TDS reconciliation software and reconciliation software for India.