GST for contractors: advances, retention and GST TDS explained
Written by Tax Paramarsh editorial teamReviewed by Tax Paramarsh GST deskLast updated 3 October 2026Applies to: GST rules in force on 3 October 2026
Contractors deal with three GST questions their accountants are asked again and again: tax on advances, tax on retention, and the TDS that government clients deduct. Here is how each works.
Advances
For services — and works contracts are services — GST is due when you receive an advance, not when you bill. It is adjusted against the invoice later.
Retention money
GST is charged on the full value of each running bill, including the part the client holds back as retention.
GST TDS by government clients
Government departments, local authorities and certain public bodies deduct 2% (1% CGST + 1% SGST, or 2% IGST) on contracts above ₹2.5 lakh. You accept the credit on the portal; it then reaches your cash ledger and can be used to pay GST.
Credit
As a supplier of works contract services, you can generally claim credit on materials, sub-contracts and services used for that work. Your client usually can’t claim credit for construction of its own building.
Key takeaways
- GST is due on advances when received.
- Charge GST on the full bill, including retention.
- Accept GST TDS credit on the portal to use it.
Common questions
What rate applies to works contracts?
It depends on the type of work and the client. We check each contract against the current notifications before billing.
What if the government client deducts TDS but I haven’t accepted it?
The credit stays pending until you accept it on the portal; it can’t be used until then.
Related
General information, reviewed on 3 October 2026 — not advice for your specific case. GST rules, forms and due dates change; talk to us before acting.