Standard Operating Procedure
Six sequential phases to follow for every vendor invoice before releasing payment.
| Phase | Action | What to Do |
|---|---|---|
| I · IDENTIFY | Categorize & Date Check |
Check the invoice date first — must fall within Tax Year 2026-27 (Apr 2026 – Mar 2027). Then determine whether the expense is for Goods, Professional Services, Technical Services, Rent, Contract, or Commission. |
| II · TIMING | Earlier-Of Rule |
Critical: Deduct TDS at whichever happens first — (a) crediting the vendor in your books, or (b) making the payment. Waiting until payment is a common, costly error that attracts interest under Section 201. |
| III · ADVANCE | Proforma / Advance Payments |
If paying an advance against a Proforma Invoice, TDS must be deducted at the time of payment — even though no final tax invoice has been received. Track this advance amount toward the vendor's annual threshold. |
| IV · VERIFY | PAN & 206AB Check |
Locate PAN on the invoice. No PAN = flat 20% deduction, no exceptions. Then verify on the IT Compliance Portal whether the vendor is a "Specified Person" (non-filer for 2 prior years). If yes, the rate doubles. |
| V · CALCULATE | Exclude GST, Apply Rate |
TDS applies only on the Base Amount (net of GST). Formula: (Invoice Total − GST) × TDS Rate%. Refer to the Rate Chart tab. |
| VI · COMPLY | Pay Net & Issue Form 131 |
Pay the vendor the net amount (Invoice Total − TDS). Deposit TDS with the government by the 7th of the following month. Issue Form 131 (replaces old Form 16A) to the vendor after quarterly filing. |
Invoice Verification Checklist
Work through every step in sequence before approving any vendor payment. No shortcuts.
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1CRITICALIs the invoice date within Tax Year 2026-27?Date must be between 1 Apr 2026 and 31 Mar 2027. If from a prior year, check whether TDS was already booked. If not, deduct before making payment now.
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2ADVANCEIs this a Proforma / Advance payment invoice?If paying an advance against a Proforma Invoice, deduct TDS immediately on the advance amount. Do not wait for the final tax invoice to arrive.
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3CLASSIFYWhat is the nature of expense — Service, Contract, Rent, or Goods?Identify the correct category. Mixed invoices (e.g., equipment + installation) must be split: goods and service portions taxed under their respective rules.
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4NO PAN = 20%Is the vendor's PAN clearly stated on the invoice?If PAN is absent → deduct a flat 20% on the base amount regardless of the nature, category, or relationship with the vendor.
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5VERIFYHas the annual threshold been crossed for this vendor?Check cumulative payments to this vendor in FY 2026-27 against the applicable annual limit. Use the Vendor Tracker tab to monitor this automatically.
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6PORTAL CHECKIs the vendor a "Specified Person" under Section 206AB?Verify on the IT Portal → Compliance Check. If the vendor has not filed ITR for 2 preceding years and TDS was >₹50,000, the applicable rate doubles.
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7CALCULATEIs GST charged separately and clearly shown on the invoice?TDS is calculated only on the pre-GST base value. Example: ₹1,18,000 invoice (₹1,00,000 base + ₹18,000 GST) → TDS is computed on ₹1,00,000 only.
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8VERIFYHas the vendor provided a Nil / Lower Deduction Certificate?If the vendor holds a valid Form 121 (u/s 197 equivalent), apply the rate mentioned in the certificate. Retain a certified copy for your records and TDS filing.
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9FINAL CHECKIs the net payment correctly calculated and reduced by TDS?Net Vendor Payment = Base Amount + GST − TDS Amount. Never pay 100% of the invoice and attempt to recover TDS afterward — this is extremely difficult and creates compliance risk.
TDS Rate Chart — FY 2026-27
All rates per Income Tax Act, 2025 (Section 393). Old section references shown for cross-referencing.
If the vendor does not provide a PAN, deduct 20% flat on the base amount regardless of category, relationship, or rate shown above.
If the vendor is a non-filer of ITR for 2 preceding years and TDS >₹50,000 was applicable, the standard rate doubles. Always verify on the IT Portal.
TDS Applicability Calculator
Enter invoice details to instantly know whether TDS applies and the precise amount to deduct.
Base Amount
The invoice value before adding GST. TDS is never calculated on the GST portion.
Annual Total Prompt
After entering the base amount, the tool will ask if that same figure is also the annual total. If you pay this vendor multiple times a year, click No and enter the full yearly estimate.
Why Annual Total Matters
TDS kicks in only when the annual threshold is crossed. A single ₹25,000 invoice may not trigger TDS — but ₹1,20,000 paid over the year to the same vendor will.
No PAN = 20% Flat
Ignore all rates — deduct 20% flat on the base amount if PAN is absent.
Net Payment Formula
Pay Vendor = Base Amount + GST − TDS Deducted
⏱ Interest on Late Deposit
After TDS is calculated, the tool asks whether deposit was delayed. If yes, enter the invoice date and actual deposit date — interest at 1.5% per month (or part thereof) is computed per the Income Tax Act, 2025.
| Invoice Month | TDS Due By |
|---|---|
| April – February | 7th of following month |
| March | 30th April |
Vendor Threshold Tracker
Track cumulative annual payments per vendor. Alerts fire when 80% and 100% of the threshold is reached.
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Quick Reference Examples
Real-world scenarios to instantly identify the right TDS treatment.
Notifications & Alerts
Set up your profile to receive on-screen alerts when vendor thresholds are approaching or crossed.
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Set up your profile above and log payments in the Vendor Tracker.
This tool runs entirely in your browser — no data is sent to any server. Notifications appear as on-screen alerts (toasts) when you log payments in the Vendor Tracker tab. Your profile and all vendor data are saved locally in this browser using LocalStorage. To receive actual WhatsApp or email alerts, share the notification log with your CA or accounts team periodically, or screenshot the notification for action.