Module 6 · Chapter 2 of 3 6 min read

TDS, GST TDS, cess and other deductions

Every deduction a Karnataka department makes from a works bill, sorted into money that comes back (income tax TDS under 194C, GST TDS under section 51, security deposit) and money that does not (BOCW labour cess, royalty, department recoveries), with the rates, where to find the credits, and how to price for the rest.

Three slices off every open-tender bill: two come back as tax credits, one is gone. A reserved tender adds the deposit, which comes back after the DLP.

In this module

Module 5 showed the deductions on a bill statement. This chapter sorts them into the two kinds that matter for pricing: deductions that are credits (your money, held briefly elsewhere) and deductions that are costs (gone). Confusing the two is how contractors either overprice and lose, or underprice and lose.

Credits: money that comes back

Income tax TDS, section 194C

Deducted on payments to contractors: 1% where the payee is an individual or HUF, 2% for a firm, LLP or company, on the taxable value (excluding GST when it is shown separately). Deposited against your PAN, reported in the department's TDS return, visible in your Form 26AS and AIS within a quarter. When you file your income tax return the TDS is set off against the tax due and any excess refunded. It is an advance, not a cost; but it is an advance of real cash, and Chapter 3 counts it.

GST TDS, section 51

Government departments and local authorities deduct 2% (1% CGST + 1% SGST) from the taxable value of contract payments where the contract value exceeds ₹2.5 lakh, and deposit it against your GSTIN. It appears in your electronic cash ledger once the department files GSTR-7 and you accept the TDS certificate on the portal. Use it to pay your GSTR-3B liability; claim a refund of the balance if it accumulates.

Security deposit recovery

In an open tender the 5% deposit is furnished at agreement and nothing is recovered from bills. In a tender reserved for SC, ST and Category-I/II(A) contractors it is deducted from every running bill instead. Either way it is released after the defect liability period: a credit with a long fuse, a year or two.

Costs: money that does not come back

Labour welfare cess (BOCW)

1% of the cost of construction, under the Building and Other Construction Workers Welfare Cess Act, deducted from every bill and remitted to the Karnataka Building and Other Construction Workers Welfare Board. It funds workers' pensions, accident cover and education. It is a levy on the work, and it is a cost in your price.

Royalty on minor minerals

Sand, gravel, murrum, size stone and aggregate carry a royalty (seigniorage) payable to the Mines and Geology department at the quarry. If you cannot show royalty-paid receipts or the dealer's transit permits for the quantities used, the division recovers the royalty from your bill at the notified rates, and it can be substantial on an earthwork-heavy job. Buy from licensed quarries and keep every permit.

Recoveries

Anything the department supplied or advanced: mobilisation or material advances with interest, water and power from department sources, hire of department machinery, penalties for substandard work, and liquidated damages. All from the contract, all avoidable or foreseeable.

Deduction	Rate	Kind	Where it reappears
Income tax TDS	1% (individual/HUF) or 2% (others)	Credit	Form 26AS; set off in your ITR
GST TDS	2% of taxable value	Credit	GST electronic cash ledger
Security deposit recovery	5% of each bill, reserved tenders only	Credit, after DLP	Refund on request after DLP
Labour welfare cess	1% of construction cost	Cost	Never
Royalty	Per Mines department rates	Cost, avoidable	Never; avoid with receipts
Recoveries and LD	As per contract	Cost	Never

Reconcile every quarter

Form 26AS against your bill statements for income tax TDS; the GST TDS certificates against the same; and a letter to the division for any deduction not deposited. Departments are large and their accounts wings make mistakes; a TDS deducted and not deposited is your loss until you point it out.

Key takeaways

Income tax TDS (1% or 2%) and GST TDS (2%) are credits: they reappear in Form 26AS and the GST cash ledger.
Security deposit recovery is a credit with a long fuse: released after the DLP.
Labour cess (1%) is a cost; royalty is a cost unless you keep quarry receipts.
Price the costs, finance the credits, and reconcile the credits every quarter.

Check yourself

0 / 3

1.Which of these is a cost, not a credit?
2.How do you avoid royalty being recovered from your bill?
3.Where does GST TDS deducted by the department show up?

Frequently asked

What is the TDS rate on contractor payments?

Under section 194C, 1% where the contractor is an individual or HUF and 2% for a partnership firm, LLP or company, on the value excluding GST when GST is shown separately on the invoice.

Is the labour cess refundable?

No. The 1% Building and Other Construction Workers welfare cess is a levy on the cost of construction, deducted from bills and paid to the welfare board.

What is GST TDS and who deducts it?

A 2% deduction (1% CGST + 1% SGST) that government departments, local authorities and notified bodies make on contract payments above ₹2.5 lakh, under section 51 of the CGST Act, deposited against the contractor's GSTIN as a credit.

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Written from the KTPP Act and Rules, the Karnataka Public Works Departmental Code 2014, KPWD bidding documents and office checklists, and checked against awarded tenders on this site. Figures change; the tender document and the registering office are the final word. Spotted an error? Tell us.