What your accounts team is actually doing
Every month our invoice goes to your finance team, and every month a slightly smaller number lands in our bank. Nothing has gone wrong. Under Indian income tax law your company is a deductor: on certain payments the payer collects a slice of the tax at source and hands it to the government against the payee's PAN.
So the deduction is not a fee, a haircut or a negotiation you won. It is our tax, paid early, by you, on our behalf, and we set it off against our own liability when we file. The only two things it changes are the size of your bank transfer and the timing of our cash.
Founders buying their first retainer usually meet this properly for the first time with an agency, which is why it reliably produces one confused email in month one. Here is the whole mechanism, described from the side that receives it.
- You deduct at the time of payment or of credit to our account, whichever happens first — so a bill accrued in March is deducted in March even if it's paid in April.
- You deposit what you deducted with the government, by the 7th of the following month in the ordinary case.
- You file a quarterly statement listing every vendor, every PAN and every rupee deducted.
- You issue us a certificate — Form 16A — showing what was deducted and what was actually deposited.
- We claim the credit, because the same figures surface in our Form 26AS and Annual Information Statement.
Which section your CA will pick, and why it's arguable
Two sections do almost all the work here, and choosing between them is a genuine judgement rather than a lookup. A marketing retainer sits awkwardly between a contract for work and a fee for professional services, because in practice it's usually both — a content calendar is closer to the first, a technical audit closer to the second.
We have been paid under both sections, by companies of similar size, in the same quarter. We don't argue about it. It's your deduction, your return and your exposure if the department later disagrees, so it's your decision to make with your CA.
- Thresholds barely matter here. Any retainer worth signing clears the single-payment limit on the first invoice, so the question is which section applies, not whether to deduct at all.
- If we can't give you a valid PAN, the rate jumps to 20% under Section 206AA. Every agency you should consider working with can give you one in ten seconds.
- An agency with a lower or nil deduction certificate under Section 197 will send you a copy with the invoice. It's uncommon at our size and it isn't a red flag either way.
- The section that gets applied doesn't change our price, our scope or our margin — only your deduction and our cash timing.
| Section | What it covers | Rate we typically see | When it shows up on a retainer |
|---|---|---|---|
| 194C | Payments under a contract for carrying out work, which expressly includes advertising | 1% to an individual or HUF, 2% to a company, firm or LLP | The common treatment. Content, campaigns, production, media work |
| 194J | Fees for professional or technical services | 10% for professional fees, 2% for technical services | When your CA reads strategy, consulting or audit work as a professional fee |
| 194H | Commission or brokerage | 2% | Rare on a flat retainer. Appears when an agency takes a cut of media spend |
A ₹75,000 retainer, from invoice to bank
This is the arithmetic that confuses people, and it confuses them for a good reason: GST is added on top of the fee, while TDS is taken off it. Two different bases on one piece of paper.
TDS is computed on the service value, not on the GST-inclusive total, provided the GST is shown as a separate line on the invoice. Every accounts team we deal with follows that convention, and it's the main reason we itemise rather than quoting one number.
- Your net cost is ₹75,000 in both columns. The ₹13,500 of GST is input credit you claim back, and the TDS was never yours.
- Our revenue is ₹75,000 in both columns. The ₹1,500 or ₹7,500 comes back to us as tax credit, just later.
- The only real difference between the two columns is working capital — ours. At 10% we're financing ₹7,500 a month of your tax compliance until we file.
| Line | Under 194C at 2% | Under 194J at 10% |
|---|---|---|
| Retainer — service value | ₹75,000 | ₹75,000 |
| GST at 18%, added | ₹13,500 | ₹13,500 |
| Invoice total | ₹88,500 | ₹88,500 |
| TDS on the service value, deducted | − ₹1,500 | − ₹7,500 |
| What actually leaves your bank | ₹87,000 | ₹81,000 |
| GST we then owe the government | ₹13,500 | ₹13,500 |
| Cash we keep from the month | ₹73,500 | ₹67,500 |
| Revenue we book, either way | ₹75,000 | ₹75,000 |
Why TDS never changes the price, and what "net of TDS" means
Occasionally a buyer reads the smaller bank transfer as a negotiated saving, and occasionally an agency quotes a fee "net of TDS" hoping the buyer won't do the division. Both are the same misunderstanding pointed in opposite directions.
"₹75,000 net of TDS" means the agency wants ₹75,000 to land in its account. At 2% that makes the invoice ₹76,531 before GST. At 10% it makes it ₹83,333. That's a 2% to 11% price increase hiding inside three words, and it's worse than it looks — the agency gets the credit for tax it never bore.
The correct way to quote is gross: a number, ex-GST, before any deduction. Ours is ₹75,000/mo for SEO, ₹40,000/mo for smaller sites — the full price list is here, and every figure on it is the invoice value, not the bank transfer.
The paper trail, and the quarter it should appear in
Deducting is the easy half. The half that gets forgotten is the reporting, and it's the half your vendor depends on — until the deduction is filed against our PAN, we have a smaller bank balance and no evidence.
The deduction reaches us through a quarterly statement: Form 26Q is the return for non-salary payments, prepared, validated and filed by you or your CA. The certificate follows roughly a fortnight later, and the credit shows up in our 26AS and AIS at about the same time.
- Deducted but not deposited is the failure that hurts. We show a shortfall, you show a liability, and neither of us can fix it from the invoice. Ask your finance team for the challan reference if a quarter goes quiet.
- Wrong PAN puts the credit against somebody else. It's fixed with a revised statement, and it's easier to catch in month two than in March.
- Deducted under the wrong section is your correction to make, not ours. We still book ₹75,000 either way.
- Nothing at all — no statement, no 16A — usually means the deduction was made and forgotten. It is the single most common reason an agency chases a client's accountant.
| Quarter | Payments covered | Statement due | Form 16A should reach us by |
|---|---|---|---|
| Q1 | April to June | 31 July | Mid-August |
| Q2 | July to September | 31 October | Mid-November |
| Q3 | October to December | 31 January | Mid-February |
| Q4 | January to March | 31 May | Mid-June |
What we do at our end, and what we won't do
Our side of this is small and boring, which is how it should be. We invoice on the 1st, ex-GST, with the service value and GST on separate lines and our PAN and GSTIN on the face of the invoice. We accept deduction under whichever section your CA applies without argument. We reconcile 26AS quarterly and chase the certificate when it's late, once, politely.
What we won't do is quote net of TDS, adjust a retainer because a deduction moved from 2% to 10%, or tell you which section to apply. The first is a price rise in disguise, the second is us asking you to fund our tax timing, and the third is your CA's job and carries your risk, not ours.
None of this changes what the money buys, which is the part actually worth your attention — where a retainer's money goes is a more useful argument to have with us than the deduction rate.