TDS related Query_Liquidated Damages

This query is : Resolved

Rajendra Kumar Das (Querist)
Follow

26 June 2026 The taxable value of the assets is ₹10,00,000, with GST amounting to ₹1,80,000, making the total invoice value raised by the supplier ₹11,80,000.

During payment processing, it has been observed that the department has proposed to deduct Liquidated Damages (LD) of ₹50,000 on account of delay in the supply and installation of the assets.

As per my understanding, TDS under the Income Tax Act @2% and TDS on GST @2% should be deducted on the original taxable value of ₹10,00,000.

However, my reporting officer is of the view that TDS and TDS on GST should be deducted on the taxable value after adjusting the LD amount, i.e., ₹9,50,000.

In my opinion, Liquidated Damages are in the nature of compensation for delay and should not result in a reduction of the taxable value of the asset for the purpose of TDS deduction. Please suggest.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

26 June 2026 Your view is generally the stronger one, provided the contract/invoice has not been revised by issuing a GST credit note reducing the taxable value.
TDS base should normally be the amount payable for the supply after excluding GST, but a liquidated damages adjustment is not the same thing as reducing the taxable value of the original supply. In practice, if the department is deducting ₹50,000 as LD from the vendor’s bill, that deduction is a separate contractual adjustment/compensation and should not be treated as a reduction in the invoice value for computing TDS on the original supply.
If the vendor supplied assets worth ₹10,00,000 and the department later recovers ₹50,000 as compensation for delay, that recovery is a post-supply adjustment, not a downward revision of the price of goods/services supplied. Unless the invoice itself is revised through a valid credit note or contractual price reduction tied to the supply value, the original taxable value remains ₹10,00,000.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now