TDS for a Solar Business: Contracts, Crews and Equipment

A Nashik EPC (illustrative) finishes a 250 kW rooftop plant for a packaging company. The invoice is ₹1.08 crore including GST. The company pays ₹1.06 crore with a note: "TDS deducted under 194C." The accountant asks: is 194C still the right section? A week later comes a second question from the buying side. This year the EPC will buy ₹6 crore of modules and inverters from one maker. Must it hold back tax too?

TDS means tax deducted at source: the payer keeps back a slice of a payment and deposits it with the government in the payee's name. Our TDS glossary entry defines the term. This post is the working guide for an EPC, where TDS shows up in three places: customers deducting from your bills, you deducting from crews and consultants, and, for bigger firms, you deducting on goods you buy.

Since 1 April 2026 the rulebook is the Income-tax Act, 2025, with the Income-tax Rules, 2026, as the Press Information Bureau announced. On 31 October 2026 we opened sections 393, 394, 395, 397 and 402 of the Act, four Rules and the department's own FAQs. Every rate below comes from those pages, and we name the Act each sits in. Where a page would not open, we say so. This is a reading guide, not tax advice: your CA decides how it applies to your PAN and contract.

Which Act and which section number apply to your payment

The Act is decided by the earlier of two dates: when the payer credits you in its books, or when it pays you. If that date is on or before 31 March 2026, the Income-tax Act, 1961 applies. If it is on or after 1 April 2026, the Income-tax Act, 2025 applies. That is the department's own answer in Q1 of its TDS Compliance FAQs.

Your invoice date does not decide it. Take a bill raised on 30 March 2026, booked by the customer on 2 April and paid on 15 April (illustrative). The first event is 2 April, so the 2025 Act applies. A sum credited in March 2026 stays under the 1961 Act even if the cash moves in April.

The numbers did not move. The department states that TDS rates and thresholds "have been retained as they are under the Income Tax Act, 1961" (Q3 of the same FAQs). Only the numbering and form names changed: the old TDS sections now sit in section 393, one long table with a serial number for each payment type.

We could not open the department's old-to-new "navigator" PDF (403 error). The first two rows are named in the department's FAQs; the next two are our match on identical text and numbers. Old circulars still count: the department's FAQ says circulars issued under the 1961 Act "remain valid as long as they do not conflict with the new Act" (section 536(2)(j)).

The Three-Tap Withholding Map

Almost every TDS question a solar owner asks sits on one of three taps. We call this the Three-Tap Withholding Map. A tap is a place where money is held back before it reaches the payee. Find the tap first.

1. T1

   Tap 1, cash in: a customer holds back part of your bill

   The payer is your customer and you are the payee. This is the 2% (or 1%) contract row, Table Sl. No. 6(i). It hits your cash flow and gives you a tax credit.

2. T2

   Tap 2, cash out: you hold back part of what you pay

   You are the payer. Crews, labour contractors, design consultants, referral partners and landlords can all fall here. A missed deduction becomes your cost.

3. T3

   Tap 3, goods in: you hold back 0.1% on large purchases

   You are the buyer of modules, inverters and structures. It applies only if your own turnover was above ₹10 crore last tax year, and only above ₹50 lakh.

Then ask four things at that tap: is the payer one the section names, what is the sum for, what amount does the rate apply to, and when does the duty start and fall due? The sections below take them in that order.

Tap 1: when a customer deducts TDS from your bill

A customer must deduct from your bill if it is a "designated person" and the bill crosses the threshold. The list is in section 402(11) of the Act, and you can read it on the department's section 402 page. It names governments, local authorities, statutory corporations, every company, every co-operative society, every registered society, every trust and every firm. "Firm" includes an LLP: section 2(45) of the Act, on the department's section 2 page, says it has the meaning in section 4 of the Indian Partnership Act, 1932, "and shall include a 'limited liability partnership' as defined in section 2(1)(n) of the Limited Liability Partnership Act, 2008". An individual, HUF, association of persons or body of individuals joins only if its business turnover in the previous tax year was above ₹1 crore (₹50 lakh for a profession).

The department's TDS rate chart for tax year 2026-27 (Act as amended by the Finance Act, 2026) gives 1% for an individual or HUF contractor and 2% for others. Table Sl. No. 6(i) sets ₹30,000 for a single sum and ₹1,00,000 for the year, which the department's TDS guide reads as alternatives: deduct when either is crossed. Once a limit is crossed, the tax is cut on the entire amount (section 393(1)(a)), at the earlier of credit and payment.

Households and societies. A family paying for its own roof is outside the deduction, but the no-deduction row names Table Sl. No. 6(i) and 6(iii), not 6(ii), which needs ₹50 lakh in a year. A registered society is on the payer list, as our guide to selling rooftop solar to housing societies notes for the scheme side. An unregistered flat owners' group comes in only through the clause (l) turnover test, so ask its auditor.

GST has its own TDS for government buyers. It is not income tax. Section 51 of the CGST Act lets the Government mandate departments, local authorities, agencies and notified persons to deduct tax on contract supplies above ₹2.5 lakh, on the value excluding GST. The CBIC copy of the Act amended to 1 January 2022 names 1 per cent. We did not open any State GST Act. For GST rates see GST on solar installation service.

Is a supply-and-install solar contract a "contract for work"?

The Act's text does not answer this directly. Table Sl. No. 6(i) covers "any sum for carrying out any work" under a contract, and "work" has an open list. Nothing we opened says how to treat one contract that sells modules and also installs them. The old CBDT circulars pull in two directions, so the answer rests on your contract terms.

So the official pages give no one-line rule. Installation, commissioning and maintenance labour sit on the work side. A sale of modules alone sits on the sale side. One contract that does both sits between them, and our searches of the department's site found no CBDT circular on solar supply-and-install contracts.

The GST 70:30 split does not carry over. For GST, a supply-and-install price is valued as 70% goods and 30% service, as explained in our guide to GST on solar systems and the entry on composite supply. That is a GST valuation rule. The TDS table, notes and definitions we opened do not adopt it. Do not assume your customer will deduct on the 30% only.

The base: GST, reimbursements and the "customer bears the tax" trap

TDS is cut on the amount before GST only where GST is shown separately, and we could confirm that rule officially for goods but not for contract bills. The department's page on purchase of goods says tax is deducted without GST if the GST part is indicated separately and tax is deducted at credit. If payment comes first, the whole amount is the base, because later GST cannot be matched to an advance. That page describes the 1961 Act's rule.

For rent and technical fees, the department's TDS guide cites CBDT Circular 23/2017 (19 July 2017) for excluding separately shown GST. Its contractor section does not mention GST. We tried again on 31 October 2026 to open the circular on the department's site; every path still returned "403 Forbidden", so we cannot quote it. The department's section 393 pages for the 2025 Act do not mention GST anywhere.

One provision keeps old circulars alive. Section 536(2)(j) of the 2025 Act says any "circular, direction, instruction, notification, order or rule" issued under the 1961 Act "shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been ... issued under the corresponding provision of this Act and shall continue in force accordingly". That keeps Circular 23/2017 in force for whatever it covers, but we could not read it to see whether that includes contractor bills. So no official text we could open settles whether GST is left out of the base at Sl. No. 6(i). Show GST on its own line in every bill, agree the base with the customer in writing before the work order is signed, and confirm it with your CA.

Reimbursements stay in. Circular 715 (Q30) says reimbursements "cannot be deducted out of the bill amount", so approval fees billed at actuals sit inside the base.

The customer-bears-the-tax trap. If a contract says the customer bears the TDS, section 393(10) increases the income to an amount that, after deduction, equals the net amount payable. The tax is then more than 2% of your price.

Tap 2: what you deduct from crews, consultants and partners

If your EPC is a company, firm, society or trust, you are a designated person yourself, so each sub-contractor you pay is a Table Sl. No. 6(i) payment. The Act says "contract" includes a sub-contract (section 402(10)). A proprietorship EPC joins the list only when its turnover passes ₹1 crore (section 402(11)(l)). From 1 April 2026, "work" also includes supply of manpower to a person to work under that person's supervision, control or direction (inserted by the Finance Act, 2026). Read both on the department's section 402 page.

Our guide to finding solar channel partners covers the business side. Whether a fee is commission, a professional fee or something else is a CA question, because the row decides the rate. Salaries sit in section 392, which this post does not cover.

One payment, one row. Note 1(a) under Table Sl. No. 8(ii) says goods TDS does not apply where tax is deductible or collectible under another provision. An installation sub-contract is a 6(i) payment, so you do not stack the two.

What happens if you miss it. The department's TDS FAQ (Q17) says that under section 35(b) of the 2025 Act (old section 40(a)(ia)), 30% of the sum is disallowed in computing business income if tax was deductible but not deducted, or not deposited by the return due date. Interest is separate. Section 398(3)(a) of the 2025 Act (department's section 398 page) makes the payer liable to pay "simple interest ... at 1% for every month or part of a month" from the date the tax was deductible to the date it is deducted, and "at 1.5% for every month or part of a month" from the date of deduction to the date it is paid. Section 448 (penalty for failure to deduct tax at source) says the Assessing Officer "may impose on him, a penalty equal to the tax which such person failed to deduct". Section 398(7) adds that no penalty under section 412 is levied unless the officer is satisfied the payer failed "without good and sufficient reasons". The Act does not say how a small payer should reconcile the two, so ask your CA before answering a notice.

Set-up. Get a TAN and quote it on challans and statements (section 397(1), on the department's section 397 page). Without the payee's valid PAN you must deduct at the higher of the section's rate and 20% (section 397(2)(b)). Collect PANs before the first payment.

Tap 3: buying modules and inverters, and the ₹10 crore buyer test

Goods TDS reaches your purchases only if your own turnover exceeded ₹10 crore in the previous tax year, and then only on the part of the sum above ₹50 lakh, at 0.1%. The row is Table Sl. No. 8(ii) in section 393(1). "Buyer" is defined in section 402(6) as a person whose total sales, gross receipts or turnover from the business exceeded ten crore rupees in the tax year before the purchase.

Do not mix this with the e-invoice limits. Those use GST "aggregate turnover" under a different law, as our guide to e-invoicing for solar businesses explains. An EPC can be over one limit and under the other.

How the ₹50 lakh is counted. The rate chart says "aggregate value exceeding Rs. 50 lakhs". The department's page on the old 194Q rule reads it as goods bought from the same seller in the year. The 2025 text we opened, "any sum exceeding fifty lakh rupees for purchase of any goods", does not say "from the seller". Ask your CA how supplier-wise totals are tested.

Sellers do not collect on general goods. The department describes the old section 206C(1H) as not applicable from 1 April 2025. The table in section 394 of the 2025 Act lists liquor, tendu leaves, timber, scrap, coal, lignite and iron ore, motor vehicles above ₹10 lakh and "any other goods, as may be notified", plus remittances, tour packages and parking, toll and mine rights. Solar modules and inverters are not named, and we did not check for a notification. If you sell scrap, row 4 makes the seller collect 2%. Whether your offcuts fit the definition in section 402(31) is a CA question.

Deposit, statement and certificate: the calendar under the 2026 Rules

Tax deducted in a month is due with the government within seven days after that month ends, and March deductions are due by 30 April. That is Rule 218(2) of the Income-tax Rules, 2026, on the department's Rule 218 page. A late deposit is the deductor's liability, but your credit appears only after the deductor files its return.

The form mapping is from the department's FAQs and guidance notes on forms under the 2026 Rules. Counting 15 days from each statement date: Q1 (31 July) gives 15 August, Q2 gives 15 November, Q3 gives 15 February and Q4 (31 May) gives 15 June.

The credit shows in your annual statement, which the department's FAQ says is Form 168 for tax year 2026-27 (AIS for earlier years). Mismatches arise when a deductor quotes an old section number or the wrong year, and the deductor must then file a corrected return. Reconcile every quarter.

Protect your cash: certificates, PAN and the TDS lines in your contract

TDS is not an extra tax, but it can still hurt. It is an advance against your own tax. Take a 10% net margin on a job (illustrative). A customer who deducts 2% of the whole contract holds back one fifth of that margin until you set the credit against your tax or claim a refund. For an EPC that finances jobs with a loan, that is a real cost.

Lower or nil deduction. Under section 395(1) you apply to the Assessing Officer on Form 128. If your total income justifies it, a certificate is issued and the payer deducts at its rate, or not at all, until it expires. The officer looks at your estimated tax, the last four tax years, existing liability and credits already held. See the section 395 page and Rule 213.

Put the TDS lines in your quote and contract, not in an email thread after the work is done. These are the lines we would ask your CA to review:

For larger jobs, see the commercial terms in our guide to selling rooftop solar to MSME factories. If you fund jobs with a loan, our overview of solar business loan options matters, because withheld tax is working capital you do not have.

What we could not verify, and how to close each gap

These are our blind spots as of 31 October 2026. Notifications adding goods to the TCS table, and state GST TDS laws, were also not checked.

How QuickEstimate fits

Quickest Solar CRM does not calculate TDS, issue tax invoices or file returns, and nothing in it replaces your CA. It sits at the quote and proposal stage, where the customer first sees your price and payment terms, and where most TDS arguments begin.

• Free plan: 1 user and 10 proposals a month, no card, enough to test the TDS lines on live quotes.
• Template terms: proposal templates carry your logo, items, product photos and terms and conditions, so PAN, the GST line, the TDS base and Form 131 timing are written once and travel with every PDF you share on WhatsApp.
• Pro: ₹6,999 per user per year with a 3-user minimum (₹20,997 for 3 users), billed yearly with a GST invoice.

What to do this week

1. Sort your last ten payments by tap. Mark each as cash in, cash out or goods in, with the date of credit or payment. That date tells you which Act applied.
2. Read one customer's TDS note. Check that it quotes section 393(1), Table Sl. No. 6(i) and a base that matches your invoice.
3. List who you pay. Write down every crew, consultant, partner and landlord, with PAN and the row that catches them.
4. Check turnover against ₹10 crore. If last tax year was above it, list supplier totals and ask your CA how the ₹50 lakh is tested.
5. Add the TDS lines to your quote template and send the gaps table to your CA as your question list.

Frequently asked questions

Which section covers TDS on a solar EPC contract now?

For credits or payments on or after 1 April 2026, section 393(1), Table Sl. No. 6(i) of the Income-tax Act, 2025, where the 1961 Act had section 194C. The rate is 2%, or 1% if the payee is an individual or HUF, with thresholds of ₹30,000 for a sum and ₹1 lakh for the year. Confirm with your CA.

Does TDS apply to a home rooftop installation?

Usually not. Section 393(4), Table Sl. No. 8(b) says no deduction under Table Sl. No. 6(i) when an individual or HUF pays exclusively for personal purposes. That row does not name Table Sl. No. 6(ii), which applies above ₹50 lakh in a year, far above a home project.

Is TDS cut on the GST amount?

For goods purchases, the department says tax is deducted without GST if GST is shown separately and tax is deducted at credit. For rent and technical fees, its guide cites CBDT Circular 23/2017, which we could not open. Section 393 of the 2025 Act does not mention GST, and section 536(2)(j) keeps old circulars in force where they are not inconsistent. No official text we could open settles Table Sl. No. 6(i), so show GST on its own line, agree the base with the customer in writing and confirm it with your CA.

Is a supply-and-install solar contract a works contract for TDS?

The Act does not say. Table Sl. No. 6(i) covers any sum for carrying out any work, and CBDT Circular 666 reads that widely. Circular 9/2012 puts a contract for sale outside it and says the agreement's terms decide. The GST 70:30 split is not adopted in the TDS table. Agree the base in writing.

Do I deduct TDS from my installation sub-contractors?

If your EPC is a company, firm, society or trust, yes, under Table Sl. No. 6(i): 1% for an individual or HUF contractor, 2% for others, above ₹30,000 for a sum or ₹1 lakh for the year. A proprietorship joins only above ₹1 crore of turnover. A missed deduction can add back 30% of the sum to your business income.

Does an EPC deduct TDS when buying panels and inverters?

Only if its turnover was above ₹10 crore in the previous tax year. Then Table Sl. No. 8(ii) takes 0.1% on the sum above ₹50 lakh, or 5% if the seller gives no valid PAN. Ask your CA how the ₹50 lakh is counted across suppliers.

How can I get a lower TDS rate, and which forms apply now?

Apply on Form 128 (old Form 13) under Rule 213 for a section 395(1) certificate; the Assessing Officer must be satisfied that your income justifies it. The quarterly statement is Form 140 (old 26Q) and the payee's certificate is Form 131 (old 16A).