How to Handle TDS in Zoho Books: Deducting, Recording and Generating Certificates

TDS is one of India's most complex compliance requirements. Every payment to a contractor, professional, landlord, or commission agent requires tax deduction at source - at the correct rate, under the correct section, with the correct due date. Miss a deduction, and the expense is disallowed under Section 40(a)(ia). Miss a payment deadline, and interest accrues at 1.5% per month. Miss a return filing, and penalties start at Rs 200 per day.

This guide covers TDS in Zoho Books from start to finish - setting up TAN and TDS sections, deducting on vendor bills, recording TDS deducted by your customers, paying via challan, generating return data, reconciling with Form 26AS, and navigating the Income Tax Act 2025 transition. For the broader Zoho Books setup, see our complete Zoho Books guide.

What Is TDS and Why Does It Matter in Zoho Books?

Tax Deducted at Source (TDS) is India's system of collecting income tax at the point of payment. When your business pays a vendor, you deduct a percentage of the payment as TDS and deposit it with the government. The vendor claims credit for this TDS when filing their income tax return. Zoho Books automates TDS calculation, tracks TDS payable and receivable, generates reports for return filing, and - from April 2026 - aligns with the new Section 393 structure under the Income Tax Act 2025.

For businesses that need TDS compliance managed professionally, our Zoho Books accounting services include TDS setup, monthly challan payments, quarterly return filing, and Form 16A generation.

Key Terms You Should Know

• TAN (Tax Deduction and Collection Account Number): 10-character alphanumeric number required for all TDS deductors. Mandatory before configuring TDS in Zoho Books.
• Section 393 (Income Tax Act 2025): The new consolidated section for all TDS provisions, replacing the 194-series from April 1, 2026. Section 393(1)/(3) for residents, 393(2) for non-residents.
• Form 26Q/27Q: Quarterly TDS return forms - 26Q for resident payments, 27Q for non-resident payments. Filed on TRACES portal.
• Form 16A: TDS certificate issued by the deductor to the vendor for non-salary TDS. Generated from TRACES after filing the quarterly return.
• Form 26AS: Consolidated tax statement showing all TDS deducted against your PAN. Used for reconciliation - ensuring TDS deducted by customers is correctly reflected.
• Challan 281: The payment form for depositing TDS with the government. Paid online via NSDL/Protean portal or bank.
• Section 40(a)(ia): Income Tax provision that disallows expense deduction if TDS was not deducted or deposited on time. 30% of the expense is disallowed.

Who Needs to Deduct TDS?

• Companies (Pvt Ltd, LLP, OPC) - mandatory for all specified payments
• Individuals/HUFs with turnover above Rs 1 crore (business) or Rs 50 lakh (profession) in the preceding year
• Government bodies and local authorities - mandatory
• Partnerships and AOPs - based on turnover thresholds

Use our pricing calculator to choose the right Zoho Books plan. TDS features are available from the Standard plan (Rs 899/month) onward.

Common TDS Sections and Rates (Updated for Income Tax Act 2025)

From 1 April 2026, all TDS provisions are consolidated under Section 393 of the Income Tax Act 2025. The following table shows the old 194-series sections, their new Section 393 equivalents, and the applicable rates:

Note: Zoho Books has a guided update feature to transition from the 194-series to Section 393. Go to your homepage → Click 'View Details' in the Income Tax Act 2025 banner → Review changes → Click 'Update Now'. This auto-renumbers sections, creates new rates, and updates vendor mappings. For GST-related setup, see our dedicated guide.

How to Set Up TDS in Zoho Books: Step-by-Step

1. Enter Your TAN. Navigation: Settings → Taxes & Compliance → Direct Taxes → TDS. Enter your 10-character TAN. This is mandatory before any TDS configuration.
2. Enable TDS Tracking. Toggle on 'Enable TDS' in the Direct Taxes settings. Zoho Books will now show TDS fields on bills, invoices, and payments.
3. Configure TDS Sections and Rates. Zoho Books provides pre-configured TDS sections. From April 2026, these align with Section 393 sub-categories. Verify the rates match your business needs. Add custom sections if required.
4. Assign TDS Sections to Vendors. For each vendor, go to Contacts → Select vendor → Tax tab → Assign the appropriate TDS section (e.g., Section 393(1) - Contractors for a contractor). Zoho Books will auto-apply this section whenever you create a bill for that vendor.
5. Verify TDS Accounts in Chart of Accounts. Ensure 'TDS Payable' accounts exist for each section (as Current Liabilities) and 'TDS Receivable' account exists (as Current Asset) for TDS deducted by your customers.

Deducting TDS on Vendor Bills in Zoho Books

When you create a bill in Zoho Books for a vendor with a TDS section assigned:

1. Create the bill (Purchases → Bills → + New).
2. Select the vendor - Zoho Books auto-applies the assigned TDS section.
3. Enter line items with amounts.
4. Zoho Books auto-calculates TDS on the bill total (or on the taxable amount, depending on your settings - before or after GST).
5. The bill shows: Total Amount, TDS Deducted, Net Payable to vendor.
6. When you record the payment, pay the net amount (bill total minus TDS) to the vendor.
7. The TDS amount is automatically credited to the TDS Payable account - this is your liability to deposit with the government.

Example: You receive a bill of Rs 1,00,000 from a contractor (TDS Section 393(1) - Contractors @ 2%). Zoho Books deducts Rs 2,000 as TDS. You pay Rs 98,000 to the vendor. Rs 2,000 goes to TDS Payable. You must deposit Rs 2,000 with the government by the 7th of the following month.

Recording TDS Deducted by Your Customers

When your customer deducts TDS on payments to you:

1. Create the invoice for the full amount (e.g., Rs 5,00,000 for professional services).
2. When recording Payment Received, enter the amount actually received (e.g., Rs 4,50,000 after 10% TDS).
3. In the payment screen, enter the TDS amount (Rs 50,000) and select the TDS section.
4. Zoho Books records: Cash/Bank Dr Rs 4,50,000, TDS Receivable Dr Rs 50,000, Accounts Receivable Cr Rs 5,00,000.
5. The TDS Receivable appears in your Balance Sheet as a Current Asset - this is the credit you claim when filing your income tax return.

Reconcile this TDS Receivable with Form 26AS quarterly - verify that your customers have actually deposited the deducted TDS with the government.

Paying TDS to the Government (Challan 281)

Navigation: Accountant → TDS Payments (from Standard plan onward)

1. Zoho Books shows all TDS liabilities grouped by section and period.
2. Select the liabilities to pay and note the total amount.
3. Go to the NSDL/Protean e-payment portal (onlineservices.tin.egov-nsdl.com) and pay Challan 281.
4. Enter: TAN, assessment year, section code, amount, bank details. Pay via net banking.
5. Note the BSR code, challan serial number, and date of deposit.
6. Return to Zoho Books → TDS Payments → Record Payment → Enter challan details.
7. The TDS Payable liability is cleared against the challan payment.

Due Dates: 7th of the following month for all months except March. March deductions must be deposited by 30 April. Late payment attracts interest at 1.5% per month under Section 201(1A). For GST return filing that runs in parallel with TDS compliance, coordinate both timelines.

TDS Reports, Return Data, and Form 16A Certificates

TDS Summary Report: Reports → TDS Summary provides section-wise TDS deducted, payable, and paid - filterable by period. This is the primary working paper for quarterly return filing.

TDS Payable Report: Shows outstanding TDS liabilities that have not yet been deposited via challan. Use this to ensure nothing is missed before the 7th.

TDS Receivable Report: Shows TDS deducted by your customers that you can claim as credit. Reconcile with Form 26AS.

Quarterly Return Filing (Form 26Q/27Q): Zoho Books does not file TDS returns directly (unlike GST returns). Export the TDS data from Zoho Books, prepare the return using TRACES RPU (Return Preparation Utility), and file on the TRACES portal.

Form 16A Generation: After filing the quarterly return on TRACES, download Form 16A certificates for each vendor from TRACES. Issue these to vendors within 15 days of filing the return. Vendors need Form 16A to claim TDS credit.

Form 26AS Reconciliation: Download Form 26AS from the income tax portal (incometax.gov.in). Compare the TDS reflected in 26AS with your TDS Receivable report in Zoho Books. Mismatches indicate that your customer has not filed their TDS return or has filed with incorrect details - follow up immediately.

Common TDS Mistakes in Zoho Books

Mistake 1: Not updating to Income Tax Act 2025 structure. From 1 April 2026, the 194-series sections are replaced by Section 393 sub-categories. If you have not run the guided update in Zoho Books, TDS will be deducted under invalid sections - creating return filing errors and reconciliation gaps. Run the update immediately if you have not already.

Mistake 2: Deducting TDS on the GST-inclusive amount. TDS should be deducted on the amount before GST (CBDT Circular 23/2017). If your Zoho Books setting calculates TDS on the gross (GST-inclusive) amount, your deductions will be higher than required - vendors will raise disputes. Verify: Settings → Direct Taxes → TDS calculation basis.

Mistake 3: Missing the 7th-of-the-month deadline. Interest at 1.5% per month from the date of deduction to the date of deposit. Use Zoho Books' TDS Payable report as a monthly reminder - check on the 1st of every month and pay by the 7th.

Mistake 4: Not assigning TDS sections to vendors. If a vendor does not have a TDS section assigned, Zoho Books will not deduct TDS on their bills. The expense will be disallowed under Section 40(a)(ia) - 30% of the amount cannot be claimed as a deduction.

Mistake 5: Not reconciling TDS Receivable with Form 26AS. If your customer deducted TDS but did not deposit it or filed an incorrect return, the credit will not appear in your Form 26AS. Without reconciliation, you may claim credit that the government does not recognise - leading to demand notices during assessment.

Monthly TDS Compliance Workflow in Zoho Books

1. 1st-5th: Review TDS Payable report. Identify all TDS deducted in the previous month that needs to be deposited.
2. 7th: Deposit TDS via Challan 281 on NSDL portal. Record challan details in Zoho Books → TDS Payments.
3. Throughout month: Create bills with auto-TDS deduction. Record payments received with TDS amounts.
4. End of quarter (Jul/Oct/Jan/May): Export TDS data from Zoho Books. Prepare Form 26Q/27Q using TRACES RPU. File on TRACES portal.
5. Within 15 days of filing: Download Form 16A from TRACES. Issue to all vendors for whom TDS was deducted during the quarter.
6. Quarterly: Download Form 26AS. Reconcile with Zoho Books TDS Receivable report. Follow up on mismatches with customers.

Key Takeaways

TDS in Zoho Books involves three workflows: deducting TDS on vendor bills (creating TDS Payable liability), recording TDS deducted by customers (creating TDS Receivable asset), and depositing TDS via Challan 281 by the 7th of the following month - with quarterly return filing and Form 16A issuance.

The Income Tax Act 2025 (effective 1 April 2026) consolidates all TDS provisions under Section 393, replacing the 194-series. Zoho Books provides a guided update that auto-renumbers sections, creates new rates, and updates vendor mappings - this must be run before creating any post-April 2026 transactions.

TDS should be calculated on the amount before GST (CBDT Circular 23/2017) - verify the TDS calculation basis in Zoho Books settings to avoid over-deduction and vendor disputes.

Non-deduction of TDS results in 30% expense disallowance under Section 40(a)(ia), while late deposit attracts 1.5% monthly interest. Both consequences make TDS compliance a financial priority, not just a regulatory one.

Quarterly reconciliation of Form 26AS with Zoho Books' TDS Receivable report is essential - it ensures your customers have actually deposited the TDS they deducted, allowing you to claim accurate credit when filing your income tax return.

Need Help Managing TDS in Zoho Books?

TDS compliance involves accurate deduction, timely deposit, quarterly return filing, Form 16A issuance, and Form 26AS reconciliation - all under the new Income Tax Act 2025 framework. Getting any step wrong triggers penalties, interest, and expense disallowance.

Explore our Zoho Books implementation for CA-supervised TDS setup, monthly compliance management, and quarterly return support.

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