How the net payable is worked out
Bill amount = value of work done this bill + GST at your rate. Net payable = bill amount − retention − mobilisation advance recovery − secured advance recovery − income-tax TDS − GST TDS − labour cess − other deductions.
- Value of work done comes from the measurement book. RA bills are usually prepared on cumulative quantities, so the value for this bill is the cumulative value to date less the value up to the previous bill. That way corrections to earlier measurements flow into the current bill.
- Retention or security deposit is a percentage of the work value held back until the defect liability period ends. The percentage, the cap and whether a bank guarantee can replace it are set by your contract.
- Mobilisation advance is paid at the start for setting up the site and is recovered in instalments from RA bills. Secured advance is paid against materials brought to site and recovered as those materials go into the work. Both recovery schedules are in the contract.
- Income-tax TDS on payments to a resident contractor is under s.393(1) of the Income-tax Act 2025, table Sl.6(i) (old s.194C): payment code 1023 at 1% for an individual or HUF and 1024 at 2% for others. No deduction is needed if a single payment is ₹30,000 or less and the year's total is ₹1 lakh or less.
- GST TDS under s.51 of the CGST Act applies when the buyer is a government department, local authority, governmental agency or a notified person and the value of supply under the contract exceeds ₹2.5 lakh. It is 2% of the taxable value, excluding GST, and the contractor takes credit for it in the electronic cash ledger.
- Labour cess on government and public sector works is deducted at source from each bill at the notified rate, now 1% of the cost of construction under s.100 of the Code on Social Security 2020.
Worked example
A firm's RA bill shows work done of ₹25,00,000 (cumulative ₹75,00,000 less ₹50,00,000 billed earlier) on a ₹5 crore government contract. GST at 18% is ₹4,50,000, so the bill amount is ₹29,50,000. Deductions: retention at 5% ₹1,25,000, mobilisation advance ₹1,50,000, secured advance ₹1,00,000, income-tax TDS at 2% (code 1024) ₹50,000, GST TDS at 2% ₹50,000, labour cess at 1% ₹25,000 and other deductions ₹10,000, a total of ₹5,10,000. Net payable is ₹24,40,000.
The GST rate on works contracts depends on the contract, the recipient and the rate notification in force; 18% is only the default here. Check your rate.
Sources: Income-tax Act 2025 s.393(1) table Sl.6(i) and payment codes 1023 and 1024 (incometaxindia.gov.in; see the TDS rate chart for FY 2026-27); CBDT Circular 23/2017 on TDS excluding GST (1961 Act); CGST Act 2017 s.51 and Notification 50/2018–Central Tax; Code on Social Security 2020 s.100 and S.O. 2322(E) dated 8 May 2026. Checked 22 October 2026.
Common questions
Is income-tax TDS deducted on the GST part of the bill?
Under the 1961 Act, CBDT Circular 23/2017 said TDS is on the amount excluding GST where GST is shown separately in the invoice. I have not found a matching circular under the Income-tax Act 2025 (check), so confirm with the deductor. The calculator lets you choose either base.
Is GST TDS a cost to the contractor?
No. The 2% deducted under CGST s.51 is credited to the contractor's electronic cash ledger once accepted on the GST portal, and can be used to pay GST. Match it every month against the deductor's GSTR-7.
Why bill on cumulative quantities?
Each RA bill restates the total quantity measured to date and pays the difference from the last bill. A quantity over- or under-measured earlier is corrected automatically, and the final bill reconciles to the measurement book.
When is retention money returned?
When your contract says, usually after the defect liability period and on the engineer's certificate. Many contracts let you replace cash retention with a bank guarantee; compare that cost with the bank guarantee calculator.