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TDS errors such as wrong rates, missing credits and 20 percent deductions trace back to an incomplete vendor master.
Rate, base and credit all depend on facts known at onboarding: PAN validity, entity type, nature of supply, exemptions and GST status.
A vendor master with PAN, PAN status, name as per PAN, entity type, default section or payment code, certificate details with validity, and GST status.
Correct TDS from the first invoice and credits that reach the vendor.
Before the first payment to a new vendor, collect five things: the PAN, the name exactly as on the PAN, the nature of the supply, any lower-deduction certificate or declaration, and the GST status. Most TDS mistakes trace back to one of these being missing.
The five details and why each matters
| Detail | Why TDS needs it | Where to check it |
|---|---|---|
| PAN | Without a valid, operative PAN, TDS is generally 20 percent or the normal rate, whichever is higher | PAN verification on the e-filing portal |
| Fourth letter of the PAN | Shows entity type: P individual, C company, F firm, H HUF. Contractor TDS is 1 percent for individuals and HUFs, 2 percent for others | The PAN itself |
| Name as on the PAN | Mismatches cause return errors and missing vendor credit | PAN card copy or portal verification |
| Nature of supply | Decides the section or payment code: contract work, professional fee, rent, commission | Purchase order and invoice description |
| Certificate or declaration | A lower-deduction certificate, a Form 15G or 15H for interest, or a transporter declaration can lower or stop TDS | The document, with its validity dates and limit |
| GST status | TDS is usually on the value before GST where GST is shown separately | GSTIN and invoice format |
What happens if the vendor gives no PAN, an inactive PAN or a mismatched name?
- No PAN or invalid PAN: the higher-rate rule applies, generally 20 percent.
- Inoperative PAN (for example, not linked with Aadhaar where required): treated much like no PAN for TDS rates.
- Name mismatch: the return may show errors and the vendor may not see the credit.
Fix these before the first payment. Correcting later means revised returns and annoyed vendors.
Which declarations or certificates can lower or stop TDS?
- Lower or nil deduction certificate issued by the department for a specific rate, limit and period.
- Form 15G or 15H for interest income, which Form 121 replaces from tax year 2026-27.
- Transporter declaration: a goods carrier owning up to ten goods carriages that gives its PAN can be paid without contractor TDS.
The lower-deduction certificate is issued under Section 197 of the 1961 Act, and the transporter relief sits within 194C. Nature of supply also decides whether 194J (professional fees) or 194H (commission) applies. Record the certificate number, limit and expiry in the vendor master so it is not applied after it lapses.
Worked example
A consultant sends a bill for ₹2,40,000 in professional fees. At an assumed 10 percent:
- With a valid PAN: TDS ₹24,000; you pay ₹2,16,000.
- Without a valid PAN, under the 20 percent rule: TDS ₹48,000; you pay ₹1,92,000.
The extra ₹24,000 is not a penalty you pay, but the consultant will be unhappy, and it will only come back to them through their tax return.
What to read next
- Next in the series: How to calculate TDS on a vendor invoice
- TDS PAN validation and mismatch
- Lower deduction certificate
TransactIG reconciles TDS, so vendor-master gaps show up as exceptions before the return. See TDS reconciliation software and reconciliation software for India.