What is subcontractor billing?
Subcontractor billing is how a main contractor certifies and pays a subcontractor's running account (RA) bills. Each bill values the measured work at the agreed rate, subtracts what was paid before, adds GST, and deducts retention, advance recovery, material issued, debit notes and TDS. The result is the net amount you actually pay.
Subcontractor billing software ties each bill to site measurements and the subcontract work order, so nobody is paid for unmeasured work and no deduction is forgotten on payment day.
Fix these in the work order before the first bill
Most billing disputes start with a vague work order. Agree these in writing up front:
- Rates and units for every item, and how extra items will be rated.
- Retention % and when it is released (usually after the defect liability period).
- Mobilisation advance and the % recovered from each bill.
- Material you'll issue (cement, steel) and the rate you'll recover it at.
- Debit notes and backcharges: who approves them and how they're notified.
- GST and TDS status: the subcontractor's GSTIN and PAN, and whether they're an individual/HUF or a firm/company (it changes the TDS rate).
- Payment terms: days from certification, and whether payment is back-to-back with your client's payment.
Worked example: a subcontractor RA bill from gross to net
RA bill no. 4 for a civil subcontractor that is a partnership firm. Numbers are illustrative.
| Line | How it's worked out | Amount |
|---|---|---|
| Up-to-date measured value | Cumulative measured qty × agreed rates | ₹10,00,000 |
| Less previously certified | RA bills 1–3 | −₹6,00,000 |
| This bill (taxable value) | ₹4,00,000 | |
| Add GST @ 18% | On ₹4,00,000 | +₹72,000 |
| Gross bill | ₹4,72,000 | |
| Less retention @ 5% | On ₹4,00,000 | −₹20,000 |
| Less mobilisation advance recovery @ 10% | On ₹4,00,000 | −₹40,000 |
| Less material issued | Cement and steel issued from your store | −₹25,000 |
| Less debit note | Rework charged back | −₹5,000 |
| Less TDS @ 2% | On ₹4,00,000, excluding GST (1% if the subcontractor is an individual or HUF) | −₹8,000 |
| Net payable | ₹3,74,000 |
How GST applies to retention, material recoveries and debit notes, and when TDS on retained amounts falls due, depends on your contract and invoicing. Confirm the treatment with your CA before you standardise a format.
2026 rules: TDS and GST on subcontractor bills
New Income-tax Act. The Income-tax Act, 2025 came into force on 1 April 2026 (PIB). TDS on payments to contractors and subcontractors, which most people still call Section 194C, now sits under Section 393 of the new Act. Use the new reference on certificates and returns, and keep "194C" in mind for older records.
- TDS rates are unchanged: 1% for individuals and HUFs, 2% for others, and 20% if the subcontractor hasn't given a PAN (ClearTax summary).
- Thresholds are unchanged: no TDS if a single payment is ₹30,000 or less and payments in the year total ₹1,00,000 or less. Once you cross either limit, deduct TDS.
- TDS is on the amount before GST where GST is shown separately on the invoice (CBDT Circular 23/2017).
- GST on works contracts is generally 18% since the GST rate changes of 22 September 2025. A few concessional categories may still apply to specific government or affordable-housing work, so check your contract's classification with your CA before applying a lower rate.
Our TDS on contractor payments guide covers the mechanics in more detail.
Back-to-back billing: protect your margin per item
For every item a subcontractor executes, you also bill your client. The margin is the difference between your client rate and your subcontract rate on the same measured quantity. Three checks keep it honest:
- Same measurement, both bills. If you certify more quantity to the subcontractor than you can bill your client, you lose money twice.
- Retention mirrors retention. If your client holds 5% from you, holding nothing from the subcontractor finances their defects with your cash.
- Pay-when-paid only if it's written. If the work order doesn't say payment depends on your client paying you, you owe the subcontractor regardless.
In True Site Sync, client work orders and subcontract rate lists sit in the same project, and both draw on the same site measurements. See BOQ vs actual cost for how margin shows up per item.
Thekedar and labour contractor bills
Thekedar ka bill kaise banaye? A labour contractor's bill is usually measured work at the agreed piece rate, plus any daily-wage days, minus advances (kharchi) already given, minus deductions such as lost tools or damaged PPE.
In True Site Sync, each worker is linked to their contractor or gang leader (mukadam) and set up as daily-wage or piece-rate. Advances and deductions are recorded as they happen, so settling the gang is one calculation, not an argument. See labour attendance and wages.
Excel or Tally vs subcontractor billing software
| Excel / Tally | Subcontractor billing software | |
|---|---|---|
| Quantity billed | From the subcontractor's own sheet | From measurements recorded on site |
| Previous bills | Looked up in last month's file | Carried forward automatically |
| Retention, TDS, advance recovery | Typed in, sometimes forgotten | Applied the same way on every bill |
| TDS register | Built at quarter-end | Section, challan and deposit date recorded with each payment |
| Who owes whom | Year-end reconciliation | Per-party ledger, any day |
Tally stays the right place for your statutory books. Many contractors keep Tally for accounts and run site measurement, billing and job costing in a construction tool, exporting figures to the accountant.
How True Site Sync handles subcontractor billing
Work orders with agreed rates
Each subcontract is a work order with its own items, rates, GST and retention. See work order vs BOQ.
Measure on site, even offline
Measurements are recorded in the digital measurement book and flow into the abstract and the RA bill, with previous-bill quantity carried forward.
Deductions on every bill
Retention %, TDS %, advance recovery and liquidated damages are deducted on the bill to show the net payable. GST is applied as CGST/SGST or IGST.
Payments and TDS register
Payments to vendors and contractors record the TDS amount, section, challan and deposit date, and the TDS Deduction Register report lists them for your returns.
Frequently asked questions
How do you prepare a subcontractor RA bill?
Measure the work done against the subcontract work order, value it at the agreed rates, subtract previously certified amounts, add GST, then deduct retention, advance recovery, material issued, debit notes and TDS to reach the net payable. See our RA bill guide for the format.
What is the TDS rate on subcontractor payments in 2026?
1% if the subcontractor is an individual or HUF, 2% for firms and companies, and 20% without a PAN. The rates didn't change when contractor TDS moved from Section 194C to Section 393 of the Income-tax Act, 2025 on 1 April 2026.
Is TDS deducted on the GST amount?
No, where GST is shown separately on the invoice. TDS is calculated on the amount before GST, as clarified in CBDT Circular 23/2017.
What is the GST rate on works contract services?
Generally 18% since the GST rate changes of 22 September 2025. Some concessional entries may still apply to specific categories of work, so confirm your contract's classification with your CA.
In what order are deductions made on a subcontractor bill?
A common order is: this bill's value, plus GST, then less retention, mobilisation advance recovery, material issued, debit notes and TDS. The work order should state the order and the percentages.
Is subcontractor payment back-to-back with the client's payment?
Only if the work order says so. Without a written pay-when-paid clause, you owe the subcontractor on certification, whether or not your client has paid you.
Thekedar ka bill kaise banaye?
Measure the work at the agreed piece rate, add any daily-wage days, then subtract the kharchi (advances) already given and any deductions such as lost tools. The balance is what you pay the thekedar.
Pay sub bills from measurements, not memory
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